Correlation Between Insteel Industries and PT Bank

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

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

Diversification Opportunities for Insteel Industries and PT Bank

-0.25

Correlation Coefficient

Insteel Industries  PT Bank

Very good diversification

The 3 months correlation between Insteel and BOZA is -0.25. Overlapping area represents the amount of risk that can be diversified away by holding Insteel Industries and PT Bank Maybank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PT Bank Maybank 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 PT Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PT Bank Maybank has no effect on the direction of Insteel Industries i.e., Insteel Industries and PT Bank go up and down completely randomly.

Pair Corralation between Insteel Industries and PT Bank

Assuming the 90 days horizon Insteel Industries is expected to generate 0.48 times more return on investment than PT Bank. However, Insteel Industries is 2.07 times less risky than PT Bank. It trades about 0.01 of its potential returns per unit of risk. PT Bank Maybank is currently generating about -0.05 per unit of risk. If you would invest  2,837  in Insteel Industries on September 17, 2024 and sell it today you would earn a total of  3.00  from holding Insteel Industries or generate 0.11% return on investment over 90 days.

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

Insteel Industries  vs.  PT Bank Maybank

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.

PT Bank Maybank

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Insteel Industries and PT Bank

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

The idea behind Insteel Industries and PT Bank Maybank 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.