Correlation Between Unity Software and American Woodmark

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

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

Diversification Opportunities for Unity Software and American Woodmark

0.05

Correlation Coefficient

Unity Software  American Woodmark

Significant diversification

The 3 months correlation between Unity and American is 0.05. Overlapping area represents the amount of risk that can be diversified away by holding Unity Software and American Woodmark in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Woodmark and Unity Software 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 Unity Software 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 Unity Software i.e., Unity Software and American Woodmark go up and down completely randomly.

Pair Corralation between Unity Software and American Woodmark

Assuming the 90 days horizon Unity Software is expected to generate 2.43 times more return on investment than American Woodmark. However, Unity Software is 2.43 times more volatile than American Woodmark. It trades about -0.01 of its potential returns per unit of risk. American Woodmark is currently generating about -0.24 per unit of risk. If you would invest  2,146  in Unity Software on December 20, 2024 and sell it today you would lose (222.00) from holding Unity Software or give up 10.34% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.33%
Values	Daily Returns

Unity Software  vs.  American Woodmark

Unity Software

Risk-Adjusted Performance

Very Weak

Over the last 90 days Unity Software has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Unity Software is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

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. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Unity Software and American Woodmark

The main advantage of trading using opposite Unity Software and American Woodmark positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Unity Software 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 Unity Software 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.