Correlation Between Mohawk Industries and American Woodmark

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

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

Diversification Opportunities for Mohawk Industries and American Woodmark

0.21

Correlation Coefficient

Mohawk Industries  American Woodmark

Modest diversification

The 3 months correlation between Mohawk and American is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding Mohawk Industries and American Woodmark in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Woodmark and Mohawk Industries 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 Mohawk Industries 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 Mohawk Industries i.e., Mohawk Industries and American Woodmark go up and down completely randomly.

Pair Corralation between Mohawk Industries and American Woodmark

Considering the 90-day investment horizon Mohawk Industries is expected to under-perform the American Woodmark. In addition to that, Mohawk Industries is 1.08 times more volatile than American Woodmark. It trades about -0.11 of its total potential returns per unit of risk. American Woodmark is currently generating about -0.05 per unit of volatility. If you would invest  9,143  in American Woodmark on September 14, 2024 and sell it today you would lose (709.00) from holding American Woodmark or give up 7.75% of portfolio value over 90 days.

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

Mohawk Industries  vs.  American Woodmark

Mohawk Industries

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Mohawk Industries 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 technical indicators remain quite persistent which may send shares a bit higher in January 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

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 latest conflicting performance, the Stock's basic indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with Mohawk Industries and American Woodmark

The main advantage of trading using opposite Mohawk Industries and American Woodmark positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Mohawk Industries 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 Mohawk Industries 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.