Correlation Between American Woodmark and Tempur Sealy

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

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

Diversification Opportunities for American Woodmark and Tempur Sealy

-0.15

Correlation Coefficient

American Woodmark  Tempur Sealy

Good diversification

The 3 months correlation between American and Tempur is -0.15. Overlapping area represents the amount of risk that can be diversified away by holding American Woodmark and Tempur Sealy International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tempur Sealy Interna 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 Tempur Sealy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tempur Sealy Interna has no effect on the direction of American Woodmark i.e., American Woodmark and Tempur Sealy go up and down completely randomly.

Pair Corralation between American Woodmark and Tempur Sealy

Assuming the 90 days horizon American Woodmark is expected to under-perform the Tempur Sealy. In addition to that, American Woodmark is 1.08 times more volatile than Tempur Sealy International. It trades about -0.04 of its total potential returns per unit of risk. Tempur Sealy International is currently generating about 0.08 per unit of volatility. If you would invest  4,827  in Tempur Sealy International on September 29, 2024 and sell it today you would earn a total of  423.00  from holding Tempur Sealy International or generate 8.76% return on investment over 90 days.

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

American Woodmark  vs.  Tempur Sealy International

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.

Tempur Sealy Interna

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Tempur Sealy International are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Tempur Sealy may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with American Woodmark and Tempur Sealy

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

The idea behind American Woodmark and Tempur Sealy International 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.

Check out your portfolio center.

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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..