Correlation Between Insteel Industries and Southern Copper

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

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

Diversification Opportunities for Insteel Industries and Southern Copper

-0.53

Correlation Coefficient

Insteel Industries  Southern Copper

Excellent diversification

The 3 months correlation between Insteel and Southern is -0.53. Overlapping area represents the amount of risk that can be diversified away by holding Insteel Industries and Southern Copper in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Southern Copper 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 Southern Copper. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Southern Copper has no effect on the direction of Insteel Industries i.e., Insteel Industries and Southern Copper go up and down completely randomly.

Pair Corralation between Insteel Industries and Southern Copper

Assuming the 90 days horizon Insteel Industries is expected to under-perform the Southern Copper. But the stock apears to be less risky and, when comparing its historical volatility, Insteel Industries is 1.68 times less risky than Southern Copper. The stock trades about -0.31 of its potential returns per unit of risk. The Southern Copper is currently generating about -0.15 of returns per unit of risk over similar time horizon. If you would invest  9,634  in Southern Copper on September 26, 2024 and sell it today you would lose (714.00) from holding Southern Copper or give up 7.41% of portfolio value over 90 days.

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

Insteel Industries  vs.  Southern Copper

Insteel Industries

Risk-Adjusted Performance

1 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Insteel Industries are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. 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.

Southern Copper

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Southern Copper has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Stock's basic 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 Southern Copper

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

The idea behind Insteel Industries and Southern Copper 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.