Correlation Between Ethan Allen and American Woodmark

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

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

Diversification Opportunities for Ethan Allen and American Woodmark

0.41

Correlation Coefficient

Ethan Allen  American Woodmark

Very weak diversification

The 3 months correlation between Ethan and American is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding Ethan Allen Interiors and American Woodmark in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Woodmark and Ethan Allen 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 Ethan Allen Interiors 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 Ethan Allen i.e., Ethan Allen and American Woodmark go up and down completely randomly.

Pair Corralation between Ethan Allen and American Woodmark

Considering the 90-day investment horizon Ethan Allen Interiors is expected to generate 0.85 times more return on investment than American Woodmark. However, Ethan Allen Interiors is 1.17 times less risky than American Woodmark. It trades about 0.03 of its potential returns per unit of risk. American Woodmark is currently generating about -0.17 per unit of risk. If you would invest  2,735  in Ethan Allen Interiors on December 28, 2024 and sell it today you would earn a total of  53.00  from holding Ethan Allen Interiors or generate 1.94% return on investment over 90 days.

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

Ethan Allen Interiors  vs.  American Woodmark

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 2 (%) 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.

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 Ethan Allen and American Woodmark

The main advantage of trading using opposite Ethan Allen and American Woodmark positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ethan Allen 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 Ethan Allen Interiors 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 File Import module to quickly import all of your third-party portfolios from your local drive in csv format.