Correlation Between MasterBrand and American Woodmark

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

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

Diversification Opportunities for MasterBrand and American Woodmark

0.83

Correlation Coefficient

MasterBrand  American Woodmark

Very poor diversification

The 3 months correlation between MasterBrand and American is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding MasterBrand and American Woodmark in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Woodmark and MasterBrand 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 MasterBrand 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 MasterBrand i.e., MasterBrand and American Woodmark go up and down completely randomly.

Pair Corralation between MasterBrand and American Woodmark

Considering the 90-day investment horizon MasterBrand is expected to generate 0.96 times more return on investment than American Woodmark. However, MasterBrand is 1.05 times less risky than American Woodmark. It trades about -0.07 of its potential returns per unit of risk. American Woodmark is currently generating about -0.19 per unit of risk. If you would invest  1,461  in MasterBrand on December 31, 2024 and sell it today you would lose (151.00) from holding MasterBrand or give up 10.34% of portfolio value over 90 days.

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

MasterBrand  vs.  American Woodmark

MasterBrand

Risk-Adjusted Performance

Very Weak

Over the last 90 days MasterBrand has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's fundamental drivers remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm 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 May 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with MasterBrand and American Woodmark

The main advantage of trading using opposite MasterBrand and American Woodmark positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if MasterBrand 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 MasterBrand 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.