Correlation Between Whirlpool and MasterBrand

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

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

Diversification Opportunities for Whirlpool and MasterBrand

0.24

Correlation Coefficient

Whirlpool  MasterBrand

Modest diversification

The 3 months correlation between Whirlpool and MasterBrand is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding Whirlpool and MasterBrand in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MasterBrand 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 MasterBrand. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MasterBrand has no effect on the direction of Whirlpool i.e., Whirlpool and MasterBrand go up and down completely randomly.

Pair Corralation between Whirlpool and MasterBrand

Considering the 90-day investment horizon Whirlpool is expected to generate 1.12 times more return on investment than MasterBrand. However, Whirlpool is 1.12 times more volatile than MasterBrand. It trades about 0.11 of its potential returns per unit of risk. MasterBrand is currently generating about 0.09 per unit of risk. If you would invest  9,666  in Whirlpool on September 2, 2024 and sell it today you would earn a total of  1,476  from holding Whirlpool or generate 15.27% return on investment over 90 days.

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

Whirlpool  vs.  MasterBrand

Whirlpool

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Whirlpool are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Even with relatively inconsistent technical indicators, Whirlpool reported solid returns over the last few months and may actually be approaching a breakup point.

MasterBrand

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in MasterBrand are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain fundamental drivers, MasterBrand may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Whirlpool and MasterBrand

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

The idea behind Whirlpool and MasterBrand 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.