Correlation Between Insteel Industries and Century Aluminum

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

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

Diversification Opportunities for Insteel Industries and Century Aluminum

-0.08

Correlation Coefficient

Insteel Industries  Century Aluminum

Good diversification

The 3 months correlation between Insteel and Century is -0.08. Overlapping area represents the amount of risk that can be diversified away by holding Insteel Industries and Century Aluminum in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Century Aluminum 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 Century Aluminum. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Century Aluminum has no effect on the direction of Insteel Industries i.e., Insteel Industries and Century Aluminum go up and down completely randomly.

Pair Corralation between Insteel Industries and Century Aluminum

Given the investment horizon of 90 days Insteel Industries is expected to under-perform the Century Aluminum. But the stock apears to be less risky and, when comparing its historical volatility, Insteel Industries is 1.77 times less risky than Century Aluminum. The stock trades about -0.06 of its potential returns per unit of risk. The Century Aluminum is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  1,474  in Century Aluminum on September 19, 2024 and sell it today you would earn a total of  487.00  from holding Century Aluminum or generate 33.04% 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.  Century Aluminum

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. In spite of latest unsteady performance, the Stock's forward indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Century Aluminum

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Century Aluminum are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating basic indicators, Century Aluminum showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Insteel Industries and Century Aluminum

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

The idea behind Insteel Industries and Century Aluminum 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 Transaction History module to view history of all your transactions and understand their impact on performance.