Correlation Between Whirlpool and American Woodmark

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

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

Diversification Opportunities for Whirlpool and American Woodmark

-0.46

Correlation Coefficient

Whirlpool  American Woodmark

Very good diversification

The 3 months correlation between Whirlpool and American is -0.46. Overlapping area represents the amount of risk that can be diversified away by holding Whirlpool and American Woodmark in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Woodmark and Whirlpool 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 Whirlpool 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 Whirlpool i.e., Whirlpool and American Woodmark go up and down completely randomly.

Pair Corralation between Whirlpool and American Woodmark

Assuming the 90 days horizon Whirlpool is expected to generate 1.08 times more return on investment than American Woodmark. However, Whirlpool is 1.08 times more volatile than American Woodmark. It trades about 0.14 of its potential returns per unit of risk. American Woodmark is currently generating about -0.06 per unit of risk. If you would invest  9,256  in Whirlpool on October 6, 2024 and sell it today you would earn a total of  1,844  from holding Whirlpool or generate 19.92% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.36%
Values	Daily Returns

Whirlpool  vs.  American Woodmark

Whirlpool

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Whirlpool are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, Whirlpool reported solid returns over the last few months and may actually be approaching a breakup point.

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 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.

Pair Trading with Whirlpool and American Woodmark

The main advantage of trading using opposite Whirlpool and American Woodmark positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Whirlpool 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 Whirlpool 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.