Correlation Between Flexsteel Industries and American Woodmark

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

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

Diversification Opportunities for Flexsteel Industries and American Woodmark

0.54

Correlation Coefficient

Flexsteel Industries  American Woodmark

Very weak diversification

The 3 months correlation between Flexsteel and American is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding Flexsteel Industries and American Woodmark in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Woodmark and Flexsteel Industries 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 Flexsteel 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 Flexsteel Industries i.e., Flexsteel Industries and American Woodmark go up and down completely randomly.

Pair Corralation between Flexsteel Industries and American Woodmark

Given the investment horizon of 90 days Flexsteel Industries is expected to generate 1.83 times more return on investment than American Woodmark. However, Flexsteel Industries is 1.83 times more volatile than American Woodmark. It trades about 0.17 of its potential returns per unit of risk. American Woodmark is currently generating about 0.05 per unit of risk. If you would invest  3,983  in Flexsteel Industries on September 4, 2024 and sell it today you would earn a total of  2,089  from holding Flexsteel Industries or generate 52.45% return on investment over 90 days.

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

Flexsteel Industries  vs.  American Woodmark

Flexsteel Industries

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Flexsteel Industries are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Flexsteel Industries unveiled solid returns over the last few months and may actually be approaching a breakup point.

American Woodmark

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in American Woodmark are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak basic indicators, American Woodmark may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Flexsteel Industries and American Woodmark

The main advantage of trading using opposite Flexsteel Industries and American Woodmark positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Flexsteel Industries 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 Flexsteel 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.