Correlation Between Insteel Industries and CompoSecure

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

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

Diversification Opportunities for Insteel Industries and CompoSecure

-0.18

Correlation Coefficient

Insteel Industries  CompoSecure

Good diversification

The 3 months correlation between Insteel and CompoSecure is -0.18. Overlapping area represents the amount of risk that can be diversified away by holding Insteel Industries and CompoSecure in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CompoSecure 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 CompoSecure. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CompoSecure has no effect on the direction of Insteel Industries i.e., Insteel Industries and CompoSecure go up and down completely randomly.

Pair Corralation between Insteel Industries and CompoSecure

Given the investment horizon of 90 days Insteel Industries is expected to generate 73456.0 times less return on investment than CompoSecure. But when comparing it to its historical volatility, Insteel Industries is 40.88 times less risky than CompoSecure. It trades about 0.0 of its potential returns per unit of risk. CompoSecure is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  112.00  in CompoSecure on September 29, 2024 and sell it today you would earn a total of  411.00  from holding CompoSecure or generate 366.96% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	88.66%
Values	Daily Returns

Insteel Industries  vs.  CompoSecure

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.

CompoSecure

Risk-Adjusted Performance

10 of 100

OK

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

Pair Trading with Insteel Industries and CompoSecure

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

The idea behind Insteel Industries and CompoSecure 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.

Check out your portfolio center.

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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.