Correlation Between Whirlpool and La-Z-Boy Incorporated

Can any of the company-specific risk be diversified away by investing in both Whirlpool and La-Z-Boy Incorporated 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 Whirlpool and La-Z-Boy Incorporated into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Whirlpool and La Z Boy Incorporated, you can compare the effects of market volatilities on Whirlpool and La-Z-Boy Incorporated 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 Whirlpool with a short position of La-Z-Boy Incorporated. Check out your portfolio center. Please also check ongoing floating volatility patterns of Whirlpool and La-Z-Boy Incorporated.

Diversification Opportunities for Whirlpool and La-Z-Boy Incorporated

0.87

Correlation Coefficient

Whirlpool  La-Z-Boy Incorporated

Very poor diversification

The 3 months correlation between Whirlpool and La-Z-Boy is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Whirlpool and La Z Boy Incorporated in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on La-Z-Boy Incorporated and Whirlpool 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 Whirlpool are associated (or correlated) with La-Z-Boy Incorporated. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of La-Z-Boy Incorporated has no effect on the direction of Whirlpool i.e., Whirlpool and La-Z-Boy Incorporated go up and down completely randomly.

Pair Corralation between Whirlpool and La-Z-Boy Incorporated

Assuming the 90 days horizon Whirlpool is expected to generate 1.42 times more return on investment than La-Z-Boy Incorporated. However, Whirlpool is 1.42 times more volatile than La Z Boy Incorporated. It trades about 0.12 of its potential returns per unit of risk. La Z Boy Incorporated is currently generating about 0.08 per unit of risk. If you would invest  9,412  in Whirlpool on September 28, 2024 and sell it today you would earn a total of  1,558  from holding Whirlpool or generate 16.55% return on investment over 90 days.

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

Whirlpool  vs.  La Z Boy Incorporated

Whirlpool

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Whirlpool are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Whirlpool reported solid returns over the last few months and may actually be approaching a breakup point.

La-Z-Boy Incorporated

Risk-Adjusted Performance

6 of 100

Modest

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

Pair Trading with Whirlpool and La-Z-Boy Incorporated

The main advantage of trading using opposite Whirlpool and La-Z-Boy Incorporated positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Whirlpool position performs unexpectedly, La-Z-Boy Incorporated 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 La-Z-Boy Incorporated will offset losses from the drop in La-Z-Boy Incorporated's long position.

The idea behind Whirlpool and La Z Boy 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.