Correlation Between Apple and American Woodmark

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

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

Diversification Opportunities for Apple and American Woodmark

-0.34

Correlation Coefficient

Apple  American Woodmark

Very good diversification

The 3 months correlation between Apple and American is -0.34. Overlapping area represents the amount of risk that can be diversified away by holding Apple Inc and American Woodmark in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Woodmark and Apple 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 Apple Inc 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 Apple i.e., Apple and American Woodmark go up and down completely randomly.

Pair Corralation between Apple and American Woodmark

Assuming the 90 days trading horizon Apple Inc is expected to generate 0.32 times more return on investment than American Woodmark. However, Apple Inc is 3.12 times less risky than American Woodmark. It trades about 0.65 of its potential returns per unit of risk. American Woodmark is currently generating about -0.45 per unit of risk. If you would invest  22,395  in Apple Inc on September 27, 2024 and sell it today you would earn a total of  2,060  from holding Apple Inc or generate 9.2% return on investment over 90 days.

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

Apple Inc  vs.  American Woodmark

Apple Inc

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Apple Inc are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. In spite of very fragile fundamental indicators, Apple displayed 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 Apple and American Woodmark

The main advantage of trading using opposite Apple and American Woodmark positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Apple 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 Apple Inc 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.