Correlation Between American Woodmark and Washington Federal

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

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

Diversification Opportunities for American Woodmark and Washington Federal

0.18

Correlation Coefficient

American Woodmark  Washington Federal

Average diversification

The 3 months correlation between American and Washington is 0.18. Overlapping area represents the amount of risk that can be diversified away by holding American Woodmark and Washington Federal in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Washington Federal 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 Washington Federal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Washington Federal has no effect on the direction of American Woodmark i.e., American Woodmark and Washington Federal go up and down completely randomly.

Pair Corralation between American Woodmark and Washington Federal

Given the investment horizon of 90 days American Woodmark is expected to under-perform the Washington Federal. In addition to that, American Woodmark is 1.69 times more volatile than Washington Federal. It trades about -0.05 of its total potential returns per unit of risk. Washington Federal is currently generating about 0.04 per unit of volatility. If you would invest  2,812  in Washington Federal on May 6, 2025 and sell it today you would earn a total of  75.00  from holding Washington Federal or generate 2.67% return on investment over 90 days.

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

American Woodmark  vs.  Washington Federal

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 latest uncertain performance, the Stock's basic indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Washington Federal

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Washington Federal are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental indicators, Washington Federal is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with American Woodmark and Washington Federal

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

The idea behind American Woodmark and Washington Federal 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.