Correlation Between Insteel Industries and H FARM

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

By analyzing existing cross correlation between Insteel Industries and H FARM SPA, you can compare the effects of market volatilities on Insteel Industries and H FARM 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 H FARM. Check out your portfolio center. Please also check ongoing floating volatility patterns of Insteel Industries and H FARM.

Diversification Opportunities for Insteel Industries and H FARM

-0.58

Correlation Coefficient

Insteel Industries  H FARM

Excellent diversification

The 3 months correlation between Insteel and 5JQ is -0.58. Overlapping area represents the amount of risk that can be diversified away by holding Insteel Industries and H FARM SPA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on H FARM SPA 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 H FARM. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of H FARM SPA has no effect on the direction of Insteel Industries i.e., Insteel Industries and H FARM go up and down completely randomly.

Pair Corralation between Insteel Industries and H FARM

Assuming the 90 days horizon Insteel Industries is expected to under-perform the H FARM. But the stock apears to be less risky and, when comparing its historical volatility, Insteel Industries is 3.29 times less risky than H FARM. The stock trades about -0.1 of its potential returns per unit of risk. The H FARM SPA is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  13.00  in H FARM SPA on October 17, 2024 and sell it today you would lose (1.00) from holding H FARM SPA or give up 7.69% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.33%
Values	Daily Returns

Insteel Industries  vs.  H FARM SPA

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 uncertain performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

H FARM SPA

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in H FARM SPA are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, H FARM may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Insteel Industries and H FARM

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

The idea behind Insteel Industries and H FARM SPA 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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.