Correlation Between Adtalem Global and American Woodmark

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

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

Diversification Opportunities for Adtalem Global and American Woodmark

-0.08

Correlation Coefficient

Adtalem Global  American Woodmark

Good diversification

The 3 months correlation between Adtalem and American is -0.08. Overlapping area represents the amount of risk that can be diversified away by holding Adtalem Global Education and American Woodmark in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Woodmark and Adtalem Global 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 Adtalem Global Education 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 Adtalem Global i.e., Adtalem Global and American Woodmark go up and down completely randomly.

Pair Corralation between Adtalem Global and American Woodmark

Assuming the 90 days trading horizon Adtalem Global Education is expected to generate 1.05 times more return on investment than American Woodmark. However, Adtalem Global is 1.05 times more volatile than American Woodmark. It trades about 0.24 of its potential returns per unit of risk. American Woodmark is currently generating about -0.06 per unit of risk. If you would invest  6,650  in Adtalem Global Education on October 11, 2024 and sell it today you would earn a total of  2,400  from holding Adtalem Global Education or generate 36.09% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.33%
Values	Daily Returns

Adtalem Global Education  vs.  American Woodmark

Adtalem Global Education

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Adtalem Global Education are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, Adtalem Global unveiled 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 latest weak performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Adtalem Global and American Woodmark

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