Correlation Between Estee Lauder and Insteel Industries

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

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

Diversification Opportunities for Estee Lauder and Insteel Industries

-0.01

Correlation Coefficient

Estee Lauder  Insteel Industries

Good diversification

The 3 months correlation between Estee and Insteel is -0.01. Overlapping area represents the amount of risk that can be diversified away by holding Estee Lauder Companies and Insteel Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Insteel Industries and Estee Lauder 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 Estee Lauder Companies 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 Estee Lauder i.e., Estee Lauder and Insteel Industries go up and down completely randomly.

Pair Corralation between Estee Lauder and Insteel Industries

Allowing for the 90-day total investment horizon Estee Lauder Companies is expected to generate 1.46 times more return on investment than Insteel Industries. However, Estee Lauder is 1.46 times more volatile than Insteel Industries. It trades about 0.27 of its potential returns per unit of risk. Insteel Industries is currently generating about -0.05 per unit of risk. If you would invest  6,502  in Estee Lauder Companies on September 21, 2024 and sell it today you would earn a total of  934.00  from holding Estee Lauder Companies or generate 14.36% return on investment over 90 days.

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

Estee Lauder Companies  vs.  Insteel Industries

Estee Lauder Companies

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Estee Lauder Companies has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unsteady performance, the Stock's essential indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

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 Estee Lauder and Insteel Industries

The main advantage of trading using opposite Estee Lauder and Insteel Industries positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Estee Lauder 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 Estee Lauder Companies 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.