Correlation Between Insteel Industries and Arch Resources

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

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

Diversification Opportunities for Insteel Industries and Arch Resources

0.85

Correlation Coefficient

Insteel Industries  Arch Resources

Very poor diversification

The 3 months correlation between Insteel and Arch is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Insteel Industries and Arch Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Arch Resources 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 Arch Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Arch Resources has no effect on the direction of Insteel Industries i.e., Insteel Industries and Arch Resources go up and down completely randomly.

Pair Corralation between Insteel Industries and Arch Resources

Assuming the 90 days horizon Insteel Industries is expected to generate 3.87 times less return on investment than Arch Resources. But when comparing it to its historical volatility, Insteel Industries is 1.13 times less risky than Arch Resources. It trades about 0.01 of its potential returns per unit of risk. Arch Resources is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  12,083  in Arch Resources on October 9, 2024 and sell it today you would earn a total of  1,722  from holding Arch Resources or generate 14.25% return on investment over 90 days.

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

Insteel Industries  vs.  Arch Resources

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

Arch Resources

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Arch Resources are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile fundamental indicators, Arch Resources may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Insteel Industries and Arch Resources

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

The idea behind Insteel Industries and Arch Resources 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 Top Crypto Exchanges module to search and analyze digital assets across top global cryptocurrency exchanges.