Correlation Between Insteel Industries and UNITED UTILITIES

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

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

Diversification Opportunities for Insteel Industries and UNITED UTILITIES

0.58

Correlation Coefficient

Insteel Industries  UNITED UTILITIES

Very weak diversification

The 3 months correlation between Insteel and UNITED is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding Insteel Industries and UNITED UTILITIES GR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on UNITED UTILITIES 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 UNITED UTILITIES. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of UNITED UTILITIES has no effect on the direction of Insteel Industries i.e., Insteel Industries and UNITED UTILITIES go up and down completely randomly.

Pair Corralation between Insteel Industries and UNITED UTILITIES

Assuming the 90 days horizon Insteel Industries is expected to generate 1.19 times less return on investment than UNITED UTILITIES. In addition to that, Insteel Industries is 1.51 times more volatile than UNITED UTILITIES GR. It trades about 0.01 of its total potential returns per unit of risk. UNITED UTILITIES GR is currently generating about 0.02 per unit of volatility. If you would invest  1,108  in UNITED UTILITIES GR on October 5, 2024 and sell it today you would earn a total of  142.00  from holding UNITED UTILITIES GR or generate 12.82% 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.  UNITED UTILITIES GR

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.

UNITED UTILITIES

Risk-Adjusted Performance

0 of 100

Insignificant

Over the last 90 days UNITED UTILITIES GR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, UNITED UTILITIES is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Insteel Industries and UNITED UTILITIES

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

The idea behind Insteel Industries and UNITED UTILITIES GR 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.