Correlation Between Insteel Industries and Kaiser Aluminum

Can any of the company-specific risk be diversified away by investing in both Insteel Industries and Kaiser 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 Kaiser 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 Kaiser Aluminum, you can compare the effects of market volatilities on Insteel Industries and Kaiser 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 Kaiser Aluminum. Check out your portfolio center. Please also check ongoing floating volatility patterns of Insteel Industries and Kaiser Aluminum.

Diversification Opportunities for Insteel Industries and Kaiser Aluminum

-0.09

Correlation Coefficient

Insteel Industries  Kaiser Aluminum

Good diversification

The 3 months correlation between Insteel and Kaiser is -0.09. Overlapping area represents the amount of risk that can be diversified away by holding Insteel Industries and Kaiser Aluminum in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kaiser 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 Kaiser Aluminum. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kaiser Aluminum has no effect on the direction of Insteel Industries i.e., Insteel Industries and Kaiser Aluminum go up and down completely randomly.

Pair Corralation between Insteel Industries and Kaiser Aluminum

Given the investment horizon of 90 days Insteel Industries is expected to under-perform the Kaiser Aluminum. But the stock apears to be less risky and, when comparing its historical volatility, Insteel Industries is 1.12 times less risky than Kaiser Aluminum. The stock trades about -0.01 of its potential returns per unit of risk. The Kaiser Aluminum is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  6,813  in Kaiser Aluminum on September 12, 2024 and sell it today you would earn a total of  1,111  from holding Kaiser Aluminum or generate 16.31% 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.  Kaiser 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 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.

Kaiser Aluminum

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Kaiser Aluminum are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile essential indicators, Kaiser Aluminum unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Insteel Industries and Kaiser Aluminum

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

The idea behind Insteel Industries and Kaiser 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.