Correlation Between Insteel Industries and Sekisui Chemical

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

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

Diversification Opportunities for Insteel Industries and Sekisui Chemical

0.53

Correlation Coefficient

Insteel Industries  Sekisui Chemical

Very weak diversification

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

Pair Corralation between Insteel Industries and Sekisui Chemical

Assuming the 90 days horizon Insteel Industries is expected to under-perform the Sekisui Chemical. In addition to that, Insteel Industries is 1.38 times more volatile than Sekisui Chemical Co. It trades about -0.02 of its total potential returns per unit of risk. Sekisui Chemical Co is currently generating about 0.07 per unit of volatility. If you would invest  1,400  in Sekisui Chemical Co on September 3, 2024 and sell it today you would earn a total of  100.00  from holding Sekisui Chemical Co or generate 7.14% return on investment over 90 days.

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

Insteel Industries  vs.  Sekisui Chemical Co

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.

Sekisui Chemical

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Sekisui Chemical Co are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Sekisui Chemical may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Insteel Industries and Sekisui Chemical

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

The idea behind Insteel Industries and Sekisui Chemical Co 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.