Correlation Between Insteel Industries and Infosys

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

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

Diversification Opportunities for Insteel Industries and Infosys

0.55

Correlation Coefficient

Insteel Industries  Infosys

Very weak diversification

The 3 months correlation between Insteel and Infosys is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding Insteel Industries and Infosys Ltd ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Infosys Ltd ADR 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 Infosys. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Infosys Ltd ADR has no effect on the direction of Insteel Industries i.e., Insteel Industries and Infosys go up and down completely randomly.

Pair Corralation between Insteel Industries and Infosys

Given the investment horizon of 90 days Insteel Industries is expected to under-perform the Infosys. In addition to that, Insteel Industries is 1.7 times more volatile than Infosys Ltd ADR. It trades about -0.01 of its total potential returns per unit of risk. Infosys Ltd ADR is currently generating about 0.02 per unit of volatility. If you would invest  2,299  in Infosys Ltd ADR on September 12, 2024 and sell it today you would earn a total of  25.00  from holding Infosys Ltd ADR or generate 1.09% 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.  Infosys Ltd ADR

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 latest stock price disarray, may contribute to short-term losses for the investors.

Infosys Ltd ADR

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Infosys Ltd ADR are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong technical and fundamental indicators, Infosys is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Insteel Industries and Infosys

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

The idea behind Insteel Industries and Infosys Ltd ADR 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.