Correlation Between Insteel Industries and Cannae Holdings

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

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

Diversification Opportunities for Insteel Industries and Cannae Holdings

0.23

Correlation Coefficient

Insteel Industries  Cannae Holdings

Modest diversification

The 3 months correlation between Insteel and Cannae is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding Insteel Industries and Cannae Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cannae Holdings 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 Cannae Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cannae Holdings has no effect on the direction of Insteel Industries i.e., Insteel Industries and Cannae Holdings go up and down completely randomly.

Pair Corralation between Insteel Industries and Cannae Holdings

Given the investment horizon of 90 days Insteel Industries is expected to generate 1.2 times more return on investment than Cannae Holdings. However, Insteel Industries is 1.2 times more volatile than Cannae Holdings. It trades about 0.01 of its potential returns per unit of risk. Cannae Holdings is currently generating about 0.0 per unit of risk. If you would invest  2,893  in Insteel Industries on September 25, 2024 and sell it today you would lose (113.00) from holding Insteel Industries or give up 3.91% of portfolio value over 90 days.

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

Insteel Industries  vs.  Cannae Holdings

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 very healthy forward indicators, Insteel Industries is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Cannae Holdings

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Cannae Holdings are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, Cannae Holdings is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Insteel Industries and Cannae Holdings

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

The idea behind Insteel Industries and Cannae Holdings 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.