Correlation Between Insteel Industries and Wal Mart

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

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

Diversification Opportunities for Insteel Industries and Wal Mart

0.22

Correlation Coefficient

Insteel Industries  Wal Mart

Modest diversification

The 3 months correlation between Insteel and Wal is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding Insteel Industries and Wal Mart de Mxico in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wal Mart de and Insteel 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 Insteel Industries are associated (or correlated) with Wal Mart. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Wal Mart de has no effect on the direction of Insteel Industries i.e., Insteel Industries and Wal Mart go up and down completely randomly.

Pair Corralation between Insteel Industries and Wal Mart

Assuming the 90 days horizon Insteel Industries is expected to under-perform the Wal Mart. But the stock apears to be less risky and, when comparing its historical volatility, Insteel Industries is 1.13 times less risky than Wal Mart. The stock trades about 0.0 of its potential returns per unit of risk. The Wal Mart de Mxico is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  258.00  in Wal Mart de Mxico on December 30, 2024 and sell it today you would lose (2.00) from holding Wal Mart de Mxico or give up 0.78% of portfolio value over 90 days.

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

Insteel Industries  vs.  Wal Mart de Mxico

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

Wal Mart de

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Insteel Industries and Wal Mart

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

The idea behind Insteel Industries and Wal Mart de Mxico 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.