Correlation Between Insteel Industries and NEW WORLD

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

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

Diversification Opportunities for Insteel Industries and NEW WORLD

-0.36

Correlation Coefficient

Insteel Industries  NEW WORLD

Very good diversification

The 3 months correlation between Insteel and NEW is -0.36. Overlapping area represents the amount of risk that can be diversified away by holding Insteel Industries and NEW WORLD DEVCO in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NEW WORLD DEVCO 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 NEW WORLD. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NEW WORLD DEVCO has no effect on the direction of Insteel Industries i.e., Insteel Industries and NEW WORLD go up and down completely randomly.

Pair Corralation between Insteel Industries and NEW WORLD

Assuming the 90 days horizon Insteel Industries is expected to generate 0.61 times more return on investment than NEW WORLD. However, Insteel Industries is 1.65 times less risky than NEW WORLD. It trades about 0.0 of its potential returns per unit of risk. NEW WORLD DEVCO is currently generating about -0.04 per unit of risk. If you would invest  2,834  in Insteel Industries on September 23, 2024 and sell it today you would lose (94.00) from holding Insteel Industries or give up 3.32% of portfolio value over 90 days.

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

Insteel Industries  vs.  NEW WORLD DEVCO

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.

NEW WORLD DEVCO

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days NEW WORLD DEVCO has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's fundamental indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Insteel Industries and NEW WORLD

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

The idea behind Insteel Industries and NEW WORLD DEVCO 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.