Correlation Between Purple Innovation and American Woodmark

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

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

Diversification Opportunities for Purple Innovation and American Woodmark

-0.59

Correlation Coefficient

Purple Innovation  American Woodmark

Excellent diversification

The 3 months correlation between Purple and American is -0.59. Overlapping area represents the amount of risk that can be diversified away by holding Purple Innovation and American Woodmark in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Woodmark and Purple Innovation 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 Purple Innovation 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 Purple Innovation i.e., Purple Innovation and American Woodmark go up and down completely randomly.

Pair Corralation between Purple Innovation and American Woodmark

Given the investment horizon of 90 days Purple Innovation is expected to under-perform the American Woodmark. In addition to that, Purple Innovation is 1.47 times more volatile than American Woodmark. It trades about -0.05 of its total potential returns per unit of risk. American Woodmark is currently generating about 0.07 per unit of volatility. If you would invest  8,351  in American Woodmark on September 1, 2024 and sell it today you would earn a total of  727.00  from holding American Woodmark or generate 8.71% return on investment over 90 days.

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

Purple Innovation  vs.  American Woodmark

Purple Innovation

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Purple Innovation has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest inconsistent performance, the Stock's basic indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

American Woodmark

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in American Woodmark are ranked lower than 5 (%) 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 December 2024.

Pair Trading with Purple Innovation and American Woodmark

The main advantage of trading using opposite Purple Innovation and American Woodmark positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Purple Innovation 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 Purple Innovation 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.