Correlation Between Prosafe SE and Insteel Industries

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

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

Diversification Opportunities for Prosafe SE and Insteel Industries

-0.4

Correlation Coefficient

Prosafe SE  Insteel Industries

Very good diversification

The 3 months correlation between Prosafe and Insteel is -0.4. Overlapping area represents the amount of risk that can be diversified away by holding Prosafe SE and Insteel Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Insteel Industries and Prosafe SE 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 Prosafe SE are associated (or correlated) with Insteel Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Insteel Industries has no effect on the direction of Prosafe SE i.e., Prosafe SE and Insteel Industries go up and down completely randomly.

Pair Corralation between Prosafe SE and Insteel Industries

Assuming the 90 days horizon Prosafe SE is expected to under-perform the Insteel Industries. In addition to that, Prosafe SE is 2.2 times more volatile than Insteel Industries. It trades about -0.1 of its total potential returns per unit of risk. Insteel Industries is currently generating about 0.03 per unit of volatility. If you would invest  2,338  in Insteel Industries on September 22, 2024 and sell it today you would earn a total of  402.00  from holding Insteel Industries or generate 17.19% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	99.8%
Values	Daily Returns

Prosafe SE  vs.  Insteel Industries

Prosafe SE

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Prosafe SE 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 January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Insteel Industries

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Prosafe SE and Insteel Industries

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

The idea behind Prosafe SE and Insteel 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.

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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.