Correlation Between Leggett Platt and Mohawk Industries

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

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

Diversification Opportunities for Leggett Platt and Mohawk Industries

0.71

Correlation Coefficient

Leggett Platt  Mohawk Industries

Poor diversification

The 3 months correlation between Leggett and Mohawk is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Leggett Platt Incorporated and Mohawk Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mohawk Industries and Leggett Platt 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 Leggett Platt Incorporated are associated (or correlated) with Mohawk Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mohawk Industries has no effect on the direction of Leggett Platt i.e., Leggett Platt and Mohawk Industries go up and down completely randomly.

Pair Corralation between Leggett Platt and Mohawk Industries

Considering the 90-day investment horizon Leggett Platt Incorporated is expected to generate 1.19 times more return on investment than Mohawk Industries. However, Leggett Platt is 1.19 times more volatile than Mohawk Industries. It trades about 0.02 of its potential returns per unit of risk. Mohawk Industries is currently generating about -0.04 per unit of risk. If you would invest  1,247  in Leggett Platt Incorporated on September 2, 2024 and sell it today you would earn a total of  12.00  from holding Leggett Platt Incorporated or generate 0.96% return on investment over 90 days.

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

Leggett Platt Incorporated  vs.  Mohawk Industries

Leggett Platt

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Leggett Platt Incorporated are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable technical and fundamental indicators, Leggett Platt is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Mohawk Industries

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Mohawk Industries has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent technical indicators, Mohawk Industries is not utilizing all of its potentials. The newest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Leggett Platt and Mohawk Industries

The main advantage of trading using opposite Leggett Platt and Mohawk Industries positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Leggett Platt position performs unexpectedly, Mohawk Industries 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 Mohawk Industries will offset losses from the drop in Mohawk Industries' long position.

The idea behind Leggett Platt Incorporated and Mohawk Industries 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.