Correlation Between Insteel Industries and VIRG NATL

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

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

Diversification Opportunities for Insteel Industries and VIRG NATL

0.4

Correlation Coefficient

Insteel Industries  VIRG NATL

Very weak diversification

The 3 months correlation between Insteel and VIRG is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding Insteel Industries and VIRG NATL BANKSH in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on VIRG NATL BANKSH 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 VIRG NATL. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of VIRG NATL BANKSH has no effect on the direction of Insteel Industries i.e., Insteel Industries and VIRG NATL go up and down completely randomly.

Pair Corralation between Insteel Industries and VIRG NATL

Assuming the 90 days horizon Insteel Industries is expected to generate 9.04 times less return on investment than VIRG NATL. But when comparing it to its historical volatility, Insteel Industries is 2.21 times less risky than VIRG NATL. It trades about 0.01 of its potential returns per unit of risk. VIRG NATL BANKSH is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  3,908  in VIRG NATL BANKSH on September 17, 2024 and sell it today you would earn a total of  72.00  from holding VIRG NATL BANKSH or generate 1.84% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	95.24%
Values	Daily Returns

Insteel Industries  vs.  VIRG NATL BANKSH

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 nearly stable basic indicators, Insteel Industries is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

VIRG NATL BANKSH

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in VIRG NATL BANKSH are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, VIRG NATL may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Insteel Industries and VIRG NATL

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

The idea behind Insteel Industries and VIRG NATL BANKSH 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.