Correlation Between Insteel Industries and Plastic Omnium

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

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

Diversification Opportunities for Insteel Industries and Plastic Omnium

-0.1

Correlation Coefficient

Insteel Industries  Plastic Omnium

Good diversification

The 3 months correlation between Insteel and Plastic is -0.1. Overlapping area represents the amount of risk that can be diversified away by holding Insteel Industries and Plastic Omnium in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Plastic Omnium 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 Plastic Omnium. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Plastic Omnium has no effect on the direction of Insteel Industries i.e., Insteel Industries and Plastic Omnium go up and down completely randomly.

Pair Corralation between Insteel Industries and Plastic Omnium

Assuming the 90 days horizon Insteel Industries is expected to under-perform the Plastic Omnium. But the stock apears to be less risky and, when comparing its historical volatility, Insteel Industries is 1.56 times less risky than Plastic Omnium. The stock trades about -0.13 of its potential returns per unit of risk. The Plastic Omnium is currently generating about 0.42 of returns per unit of risk over similar time horizon. If you would invest  799.00  in Plastic Omnium on September 23, 2024 and sell it today you would earn a total of  178.00  from holding Plastic Omnium or generate 22.28% 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.  Plastic Omnium

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.

Plastic Omnium

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Plastic Omnium are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Plastic Omnium unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Insteel Industries and Plastic Omnium

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

The idea behind Insteel Industries and Plastic Omnium 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.