Correlation Between Mohawk Industries and Tempur Sealy

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

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

Diversification Opportunities for Mohawk Industries and Tempur Sealy

0.85

Correlation Coefficient

Mohawk Industries  Tempur Sealy

Very poor diversification

The 3 months correlation between Mohawk and Tempur is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Mohawk Industries and Tempur Sealy International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tempur Sealy Interna and Mohawk Industries 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 Mohawk Industries are associated (or correlated) with Tempur Sealy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tempur Sealy Interna has no effect on the direction of Mohawk Industries i.e., Mohawk Industries and Tempur Sealy go up and down completely randomly.

Pair Corralation between Mohawk Industries and Tempur Sealy

Considering the 90-day investment horizon Mohawk Industries is expected to generate 1.6 times more return on investment than Tempur Sealy. However, Mohawk Industries is 1.6 times more volatile than Tempur Sealy International. It trades about -0.09 of its potential returns per unit of risk. Tempur Sealy International is currently generating about -0.15 per unit of risk. If you would invest  12,211  in Mohawk Industries on February 4, 2024 and sell it today you would lose (574.00) from holding Mohawk Industries or give up 4.7% of portfolio value over 90 days.

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

Mohawk Industries  vs.  Tempur Sealy International

Mohawk Industries

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Mohawk Industries are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite quite unsteady technical indicators, Mohawk Industries may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Tempur Sealy Interna

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Tempur Sealy International has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Tempur Sealy is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Mohawk Industries and Tempur Sealy

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

The idea behind Mohawk Industries and Tempur Sealy International 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.

Check out your portfolio center.

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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.