Correlation Between Grupo Mxico and American Woodmark

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

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

Diversification Opportunities for Grupo Mxico and American Woodmark

-0.46

Correlation Coefficient

Grupo Mxico  American Woodmark

Very good diversification

The 3 months correlation between Grupo and American is -0.46. Overlapping area represents the amount of risk that can be diversified away by holding Grupo Mxico SAB and American Woodmark in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Woodmark and Grupo Mxico 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 Grupo Mxico SAB 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 Grupo Mxico i.e., Grupo Mxico and American Woodmark go up and down completely randomly.

Pair Corralation between Grupo Mxico and American Woodmark

Assuming the 90 days horizon Grupo Mxico SAB is expected to generate 1.81 times more return on investment than American Woodmark. However, Grupo Mxico is 1.81 times more volatile than American Woodmark. It trades about 0.11 of its potential returns per unit of risk. American Woodmark is currently generating about 0.03 per unit of risk. If you would invest  279.00  in Grupo Mxico SAB on September 27, 2024 and sell it today you would earn a total of  186.00  from holding Grupo Mxico SAB or generate 66.67% return on investment over 90 days.

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

Grupo Mxico SAB  vs.  American Woodmark

Grupo Mxico SAB

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Grupo Mxico SAB are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Grupo Mxico reported solid returns over the last few months and may actually be approaching a breakup point.

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 current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Grupo Mxico and American Woodmark

The main advantage of trading using opposite Grupo Mxico and American Woodmark positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Grupo Mxico 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 Grupo Mxico SAB 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.