Correlation Between Retail Estates and American Woodmark

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

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

Diversification Opportunities for Retail Estates and American Woodmark

0.39

Correlation Coefficient

Retail Estates  American Woodmark

Weak diversification

The 3 months correlation between Retail and American is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding Retail Estates NV and American Woodmark in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Woodmark and Retail Estates 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 Retail Estates NV 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 Retail Estates i.e., Retail Estates and American Woodmark go up and down completely randomly.

Pair Corralation between Retail Estates and American Woodmark

Assuming the 90 days horizon Retail Estates is expected to generate 3.65 times less return on investment than American Woodmark. But when comparing it to its historical volatility, Retail Estates NV is 1.85 times less risky than American Woodmark. It trades about 0.02 of its potential returns per unit of risk. American Woodmark is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  5,450  in American Woodmark on October 26, 2024 and sell it today you would earn a total of  2,300  from holding American Woodmark or generate 42.2% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	99.8%
Values	Daily Returns

Retail Estates NV  vs.  American Woodmark

Retail Estates NV

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Retail Estates NV has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

American Woodmark

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days American Woodmark has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unsteady performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Retail Estates and American Woodmark

The main advantage of trading using opposite Retail Estates and American Woodmark positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Retail Estates 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 Retail Estates NV 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.