Correlation Between American Woodmark and Ethan Allen

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

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

Diversification Opportunities for American Woodmark and Ethan Allen

0.41

Correlation Coefficient

American Woodmark  Ethan Allen

Very weak diversification

The 3 months correlation between American and Ethan is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding American Woodmark and Ethan Allen Interiors in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ethan Allen Interiors and American Woodmark 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 American Woodmark are associated (or correlated) with Ethan Allen. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ethan Allen Interiors has no effect on the direction of American Woodmark i.e., American Woodmark and Ethan Allen go up and down completely randomly.

Pair Corralation between American Woodmark and Ethan Allen

Given the investment horizon of 90 days American Woodmark is expected to under-perform the Ethan Allen. In addition to that, American Woodmark is 1.19 times more volatile than Ethan Allen Interiors. It trades about -0.19 of its total potential returns per unit of risk. Ethan Allen Interiors is currently generating about 0.01 per unit of volatility. If you would invest  2,735  in Ethan Allen Interiors on December 28, 2024 and sell it today you would earn a total of  18.00  from holding Ethan Allen Interiors or generate 0.66% return on investment over 90 days.

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

American Woodmark  vs.  Ethan Allen Interiors

American Woodmark

Risk-Adjusted Performance

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 conflicting performance in the last few months, the Stock's basic indicators remain rather sound which may send shares a bit higher in April 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Ethan Allen Interiors

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Ethan Allen Interiors are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, Ethan Allen is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with American Woodmark and Ethan Allen

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

The idea behind American Woodmark and Ethan Allen Interiors 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.