Correlation Between American Woodmark and Fortune Brands

Can any of the company-specific risk be diversified away by investing in both American Woodmark 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 American Woodmark and Fortune Brands into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between American Woodmark and Fortune Brands Home, you can compare the effects of market volatilities on American Woodmark 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 American Woodmark with a short position of Fortune Brands. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Woodmark and Fortune Brands.

Diversification Opportunities for American Woodmark and Fortune Brands

-0.02

Correlation Coefficient

American Woodmark  Fortune Brands

Good diversification

The 3 months correlation between American and Fortune is -0.02. Overlapping area represents the amount of risk that can be diversified away by holding American Woodmark 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 American Woodmark 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 American Woodmark 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 American Woodmark i.e., American Woodmark and Fortune Brands go up and down completely randomly.

Pair Corralation between American Woodmark and Fortune Brands

Given the investment horizon of 90 days American Woodmark is expected to generate 0.33 times more return on investment than Fortune Brands. However, American Woodmark is 3.07 times less risky than Fortune Brands. It trades about 0.06 of its potential returns per unit of risk. Fortune Brands Home is currently generating about -0.07 per unit of risk. If you would invest  4,803  in American Woodmark on January 20, 2024 and sell it today you would earn a total of  4,217  from holding American Woodmark or generate 87.8% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	35.96%
Values	Daily Returns

American Woodmark  vs.  Fortune Brands Home

American Woodmark

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days American Woodmark has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, American Woodmark is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

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. In spite of comparatively stable technical indicators, Fortune Brands is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with American Woodmark and Fortune Brands

The main advantage of trading using opposite American Woodmark and Fortune Brands positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Woodmark 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 American Woodmark 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.