Correlation Between Nova Lifestyle and American Woodmark

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

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

Diversification Opportunities for Nova Lifestyle and American Woodmark

0.38

Correlation Coefficient

Nova Lifestyle  American Woodmark

Weak diversification

The 3 months correlation between Nova and American is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding Nova Lifestyle I and American Woodmark in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Woodmark and Nova Lifestyle 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 Nova Lifestyle I 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 Nova Lifestyle i.e., Nova Lifestyle and American Woodmark go up and down completely randomly.

Pair Corralation between Nova Lifestyle and American Woodmark

Given the investment horizon of 90 days Nova Lifestyle I is expected to generate 3.04 times more return on investment than American Woodmark. However, Nova Lifestyle is 3.04 times more volatile than American Woodmark. It trades about 0.09 of its potential returns per unit of risk. American Woodmark is currently generating about -0.19 per unit of risk. If you would invest  55.00  in Nova Lifestyle I on December 28, 2024 and sell it today you would earn a total of  16.00  from holding Nova Lifestyle I or generate 29.09% return on investment over 90 days.

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

Nova Lifestyle I  vs.  American Woodmark

Nova Lifestyle I

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Nova Lifestyle I are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak technical and fundamental indicators, Nova Lifestyle showed solid returns over the last few months and may actually be approaching a breakup point.

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 Nova Lifestyle and American Woodmark

The main advantage of trading using opposite Nova Lifestyle and American Woodmark positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Nova Lifestyle 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 Nova Lifestyle I 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.

Check out your portfolio center.

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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.