Correlation Between American Woodmark and Bassett Furniture

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

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

Diversification Opportunities for American Woodmark and Bassett Furniture

0.41

Correlation Coefficient

American Woodmark  Bassett Furniture

Very weak diversification

The 3 months correlation between American and Bassett is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding American Woodmark and Bassett Furniture Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bassett Furniture and American Woodmark 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 American Woodmark are associated (or correlated) with Bassett Furniture. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bassett Furniture has no effect on the direction of American Woodmark i.e., American Woodmark and Bassett Furniture go up and down completely randomly.

Pair Corralation between American Woodmark and Bassett Furniture

Given the investment horizon of 90 days American Woodmark is expected to generate 0.83 times more return on investment than Bassett Furniture. However, American Woodmark is 1.21 times less risky than Bassett Furniture. It trades about -0.03 of its potential returns per unit of risk. Bassett Furniture Industries is currently generating about -0.03 per unit of risk. If you would invest  5,675  in American Woodmark on May 7, 2025 and sell it today you would lose (330.00) from holding American Woodmark or give up 5.81% of portfolio value over 90 days.

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

American Woodmark  vs.  Bassett Furniture Industries

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 rather sound basic indicators, American Woodmark is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Bassett Furniture

Risk-Adjusted Performance

Very Weak

Over the last 90 days Bassett Furniture Industries has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable technical and fundamental indicators, Bassett Furniture is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with American Woodmark and Bassett Furniture

The main advantage of trading using opposite American Woodmark and Bassett Furniture positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Woodmark position performs unexpectedly, Bassett Furniture 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 Bassett Furniture will offset losses from the drop in Bassett Furniture's long position.

The idea behind American Woodmark and Bassett Furniture Industries 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.