Correlation Between Mohawk Industries and Leggett Platt

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

By analyzing existing cross correlation between Mohawk Industries and Leggett Platt Incorporated, you can compare the effects of market volatilities on Mohawk Industries and Leggett Platt 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 Leggett Platt. Check out your portfolio center. Please also check ongoing floating volatility patterns of Mohawk Industries and Leggett Platt.

Diversification Opportunities for Mohawk Industries and Leggett Platt

0.72

Correlation Coefficient

Mohawk Industries  Leggett Platt

Poor diversification

The 3 months correlation between Mohawk and Leggett is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Mohawk Industries and Leggett Platt Incorporated in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Leggett Platt 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 Leggett Platt. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Leggett Platt has no effect on the direction of Mohawk Industries i.e., Mohawk Industries and Leggett Platt go up and down completely randomly.

Pair Corralation between Mohawk Industries and Leggett Platt

Considering the 90-day investment horizon Mohawk Industries is expected to under-perform the Leggett Platt. But the stock apears to be less risky and, when comparing its historical volatility, Mohawk Industries is 1.19 times less risky than Leggett Platt. The stock trades about -0.04 of its potential returns per unit of risk. The Leggett Platt Incorporated is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  1,247  in Leggett Platt Incorporated on August 31, 2024 and sell it today you would earn a total of  11.00  from holding Leggett Platt Incorporated or generate 0.88% return on investment over 90 days.

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

Mohawk Industries  vs.  Leggett Platt Incorporated

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 quite persistent technical indicators, Mohawk Industries is not utilizing all of its potentials. The newest stock price mess, may contribute to short-term losses for the institutional investors.

Leggett Platt

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Leggett Platt Incorporated are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable technical and fundamental indicators, Leggett Platt is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Mohawk Industries and Leggett Platt

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

The idea behind Mohawk Industries and Leggett Platt Incorporated 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.