Correlation Between La Z and American Woodmark

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

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

Diversification Opportunities for La Z and American Woodmark

0.75

Correlation Coefficient

La Z  American Woodmark

Poor diversification

The 3 months correlation between LZB and American is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding La Z Boy Incorporated and American Woodmark in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Woodmark and La Z 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 La Z Boy Incorporated 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 La Z i.e., La Z and American Woodmark go up and down completely randomly.

Pair Corralation between La Z and American Woodmark

Considering the 90-day investment horizon La Z Boy Incorporated is expected to generate 0.85 times more return on investment than American Woodmark. However, La Z Boy Incorporated is 1.18 times less risky than American Woodmark. It trades about -0.05 of its potential returns per unit of risk. American Woodmark is currently generating about -0.17 per unit of risk. If you would invest  4,336  in La Z Boy Incorporated on December 28, 2024 and sell it today you would lose (325.00) from holding La Z Boy Incorporated or give up 7.5% of portfolio value over 90 days.

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

La Z Boy Incorporated  vs.  American Woodmark

La Z Boy

Risk-Adjusted Performance

Very Weak

Over the last 90 days La Z Boy Incorporated has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

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 La Z and American Woodmark

The main advantage of trading using opposite La Z and American Woodmark positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if La Z 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 La Z Boy Incorporated 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.