Correlation Between American Woodmark and MasterBrand

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

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

Diversification Opportunities for American Woodmark and MasterBrand

0.77

Correlation Coefficient

American Woodmark  MasterBrand

Poor diversification

The 3 months correlation between American and MasterBrand is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding American Woodmark and MasterBrand in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MasterBrand 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 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 American Woodmark i.e., American Woodmark and MasterBrand go up and down completely randomly.

Pair Corralation between American Woodmark and MasterBrand

Given the investment horizon of 90 days American Woodmark is expected to under-perform the MasterBrand. In addition to that, American Woodmark is 1.04 times more volatile than MasterBrand. It trades about -0.19 of its total potential returns per unit of risk. MasterBrand is currently generating about -0.06 per unit of volatility. If you would invest  1,442  in MasterBrand on December 30, 2024 and sell it today you would lose (132.00) from holding MasterBrand or give up 9.15% of portfolio value over 90 days.

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

American Woodmark  vs.  MasterBrand

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.

MasterBrand

Risk-Adjusted Performance

Very Weak

Over the last 90 days MasterBrand has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's fundamental drivers remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with American Woodmark and MasterBrand

The main advantage of trading using opposite American Woodmark and MasterBrand positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Woodmark 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 American Woodmark 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.

Check out your portfolio center.

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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.