Correlation Between Church Dwight and Insteel Industries

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

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

Diversification Opportunities for Church Dwight and Insteel Industries

0.26

Correlation Coefficient

Church Dwight  Insteel Industries

Modest diversification

The 3 months correlation between Church and Insteel is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding Church Dwight and Insteel Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Insteel Industries and Church Dwight 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 Church Dwight 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 Church Dwight i.e., Church Dwight and Insteel Industries go up and down completely randomly.

Pair Corralation between Church Dwight and Insteel Industries

Considering the 90-day investment horizon Church Dwight is expected to under-perform the Insteel Industries. But the stock apears to be less risky and, when comparing its historical volatility, Church Dwight is 2.08 times less risky than Insteel Industries. The stock trades about -0.3 of its potential returns per unit of risk. The Insteel Industries is currently generating about -0.05 of returns per unit of risk over similar time horizon. If you would invest  2,974  in Insteel Industries on September 21, 2024 and sell it today you would lose (65.00) from holding Insteel Industries or give up 2.19% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	95.45%
Values	Daily Returns

Church Dwight  vs.  Insteel Industries

Church Dwight

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Church Dwight are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical indicators, Church Dwight is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

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. In spite of latest unsteady performance, the Stock's forward indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Pair Trading with Church Dwight and Insteel Industries

The main advantage of trading using opposite Church Dwight and Insteel Industries positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Church Dwight 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 Church Dwight 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.