Correlation Between Insteel Industries and Four Seasons

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

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

Diversification Opportunities for Insteel Industries and Four Seasons

-0.42

Correlation Coefficient

Insteel Industries  Four Seasons

Very good diversification

The 3 months correlation between Insteel and Four is -0.42. Overlapping area represents the amount of risk that can be diversified away by holding Insteel Industries and Four Seasons Education in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Four Seasons Education 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 Four Seasons. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Four Seasons Education has no effect on the direction of Insteel Industries i.e., Insteel Industries and Four Seasons go up and down completely randomly.

Pair Corralation between Insteel Industries and Four Seasons

Given the investment horizon of 90 days Insteel Industries is expected to under-perform the Four Seasons. But the stock apears to be less risky and, when comparing its historical volatility, Insteel Industries is 1.52 times less risky than Four Seasons. The stock trades about -0.29 of its potential returns per unit of risk. The Four Seasons Education is currently generating about -0.08 of returns per unit of risk over similar time horizon. If you would invest  1,091  in Four Seasons Education on September 25, 2024 and sell it today you would lose (51.00) from holding Four Seasons Education or give up 4.67% of portfolio value over 90 days.

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

Insteel Industries  vs.  Four Seasons Education

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.

Four Seasons Education

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Four Seasons Education has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest inconsistent performance, the Stock's fundamental indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with Insteel Industries and Four Seasons

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

The idea behind Insteel Industries and Four Seasons Education 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.