Correlation Between Howden Joinery and American Woodmark

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

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

Diversification Opportunities for Howden Joinery and American Woodmark

-0.09

Correlation Coefficient

Howden Joinery  American Woodmark

Good diversification

The 3 months correlation between Howden and American is -0.09. Overlapping area represents the amount of risk that can be diversified away by holding Howden Joinery Group and American Woodmark in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Woodmark and Howden Joinery 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 Howden Joinery Group are associated (or correlated) with American Woodmark. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Woodmark has no effect on the direction of Howden Joinery i.e., Howden Joinery and American Woodmark go up and down completely randomly.

Pair Corralation between Howden Joinery and American Woodmark

Assuming the 90 days horizon Howden Joinery Group is expected to under-perform the American Woodmark. But the stock apears to be less risky and, when comparing its historical volatility, Howden Joinery Group is 1.57 times less risky than American Woodmark. The stock trades about -0.15 of its potential returns per unit of risk. The American Woodmark is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest  8,300  in American Woodmark on September 28, 2024 and sell it today you would lose (600.00) from holding American Woodmark or give up 7.23% of portfolio value over 90 days.

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

Howden Joinery Group  vs.  American Woodmark

Howden Joinery Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Howden Joinery Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile 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.

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. Despite nearly stable basic indicators, American Woodmark is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Howden Joinery and American Woodmark

The main advantage of trading using opposite Howden Joinery and American Woodmark positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Howden Joinery position performs unexpectedly, American Woodmark 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 American Woodmark will offset losses from the drop in American Woodmark's long position.

The idea behind Howden Joinery Group and American Woodmark 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.