Correlation Between American Woodmark and DATANG INTL

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

By analyzing existing cross correlation between American Woodmark and DATANG INTL POW, you can compare the effects of market volatilities on American Woodmark and DATANG INTL 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 DATANG INTL. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Woodmark and DATANG INTL.

Diversification Opportunities for American Woodmark and DATANG INTL

-0.09

Correlation Coefficient

American Woodmark  DATANG INTL

Good diversification

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

Pair Corralation between American Woodmark and DATANG INTL

Assuming the 90 days horizon American Woodmark is expected to under-perform the DATANG INTL. But the stock apears to be less risky and, when comparing its historical volatility, American Woodmark is 1.72 times less risky than DATANG INTL. The stock trades about -0.04 of its potential returns per unit of risk. The DATANG INTL POW is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  18.00  in DATANG INTL POW on September 30, 2024 and sell it today you would lose (1.00) from holding DATANG INTL POW or give up 5.56% of portfolio value over 90 days.

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

American Woodmark  vs.  DATANG INTL POW

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 newest stock price disturbance, may contribute to mid-run losses for the stockholders.

DATANG INTL POW

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days DATANG INTL POW has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, DATANG INTL is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with American Woodmark and DATANG INTL

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

The idea behind American Woodmark and DATANG INTL POW 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.