Correlation Between VIRG NATL and Insteel Industries

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

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

Diversification Opportunities for VIRG NATL and Insteel Industries

0.34

Correlation Coefficient

VIRG NATL  Insteel Industries

Weak diversification

The 3 months correlation between VIRG and Insteel is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding VIRG NATL BANKSH and Insteel Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Insteel Industries and VIRG NATL 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 VIRG NATL BANKSH 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 VIRG NATL i.e., VIRG NATL and Insteel Industries go up and down completely randomly.

Pair Corralation between VIRG NATL and Insteel Industries

Assuming the 90 days horizon VIRG NATL BANKSH is expected to under-perform the Insteel Industries. In addition to that, VIRG NATL is 1.05 times more volatile than Insteel Industries. It trades about -0.03 of its total potential returns per unit of risk. Insteel Industries is currently generating about 0.0 per unit of volatility. If you would invest  2,657  in Insteel Industries on December 27, 2024 and sell it today you would lose (57.00) from holding Insteel Industries or give up 2.15% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.41%
Values	Daily Returns

VIRG NATL BANKSH  vs.  Insteel Industries

VIRG NATL BANKSH

Risk-Adjusted Performance

Very Weak

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

Insteel Industries

Risk-Adjusted Performance

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 latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with VIRG NATL and Insteel Industries

The main advantage of trading using opposite VIRG NATL and Insteel Industries positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if VIRG NATL 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 VIRG NATL BANKSH 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.

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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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.