Correlation Between Bassett Furniture and American Woodmark

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

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

Diversification Opportunities for Bassett Furniture and American Woodmark

-0.91

Correlation Coefficient

Bassett Furniture  American Woodmark

Pay attention - limited upside

The 3 months correlation between Bassett and American is -0.91. Overlapping area represents the amount of risk that can be diversified away by holding Bassett Furniture Industries and American Woodmark in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Woodmark and Bassett Furniture 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 Bassett Furniture Industries 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 Bassett Furniture i.e., Bassett Furniture and American Woodmark go up and down completely randomly.

Pair Corralation between Bassett Furniture and American Woodmark

Given the investment horizon of 90 days Bassett Furniture Industries is expected to generate 0.86 times more return on investment than American Woodmark. However, Bassett Furniture Industries is 1.17 times less risky than American Woodmark. It trades about 0.12 of its potential returns per unit of risk. American Woodmark is currently generating about -0.19 per unit of risk. If you would invest  1,366  in Bassett Furniture Industries on December 29, 2024 and sell it today you would earn a total of  205.00  from holding Bassett Furniture Industries or generate 15.01% return on investment over 90 days.

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

Bassett Furniture Industries  vs.  American Woodmark

Bassett Furniture

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Bassett Furniture Industries are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain technical and fundamental indicators, Bassett Furniture unveiled solid returns over the last few months and may actually be approaching a breakup point.

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.

Pair Trading with Bassett Furniture and American Woodmark

The main advantage of trading using opposite Bassett Furniture and American Woodmark positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bassett Furniture 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 Bassett Furniture Industries 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.