Correlation Between Leggett Platt and Fortune Brands

Can any of the company-specific risk be diversified away by investing in both Leggett Platt and Fortune Brands at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Leggett Platt and Fortune Brands into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Leggett Platt Incorporated and Fortune Brands Home, you can compare the effects of market volatilities on Leggett Platt and Fortune Brands and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Leggett Platt with a short position of Fortune Brands. Check out your portfolio center. Please also check ongoing floating volatility patterns of Leggett Platt and Fortune Brands.

Diversification Opportunities for Leggett Platt and Fortune Brands

0.77

Correlation Coefficient

Leggett Platt  Fortune Brands

Poor diversification

The 3 months correlation between Leggett and Fortune is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Leggett Platt Incorporated and Fortune Brands Home in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fortune Brands Home and Leggett Platt is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Leggett Platt Incorporated are associated (or correlated) with Fortune Brands. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fortune Brands Home has no effect on the direction of Leggett Platt i.e., Leggett Platt and Fortune Brands go up and down completely randomly.

Pair Corralation between Leggett Platt and Fortune Brands

Assuming the 90 days horizon Leggett Platt Incorporated is expected to under-perform the Fortune Brands. In addition to that, Leggett Platt is 1.39 times more volatile than Fortune Brands Home. It trades about -0.67 of its total potential returns per unit of risk. Fortune Brands Home is currently generating about -0.4 per unit of volatility. If you would invest  7,400  in Fortune Brands Home on September 28, 2024 and sell it today you would lose (750.00) from holding Fortune Brands Home or give up 10.14% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Leggett Platt Incorporated  vs.  Fortune Brands Home

Leggett Platt

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Leggett Platt Incorporated has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Fortune Brands Home

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Fortune Brands Home has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Leggett Platt and Fortune Brands

The main advantage of trading using opposite Leggett Platt and Fortune Brands positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Leggett Platt position performs unexpectedly, Fortune Brands can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Fortune Brands will offset losses from the drop in Fortune Brands' long position.

The idea behind Leggett Platt Incorporated and Fortune Brands Home pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.