Correlation Between Insteel Industries and Nuvalent

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

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

Diversification Opportunities for Insteel Industries and Nuvalent

0.51

Correlation Coefficient

Insteel Industries  Nuvalent

Very weak diversification

The 3 months correlation between Insteel and Nuvalent is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding Insteel Industries and Nuvalent in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nuvalent 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 Nuvalent. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nuvalent has no effect on the direction of Insteel Industries i.e., Insteel Industries and Nuvalent go up and down completely randomly.

Pair Corralation between Insteel Industries and Nuvalent

Given the investment horizon of 90 days Insteel Industries is expected to under-perform the Nuvalent. But the stock apears to be less risky and, when comparing its historical volatility, Insteel Industries is 1.61 times less risky than Nuvalent. The stock trades about -0.58 of its potential returns per unit of risk. The Nuvalent is currently generating about -0.35 of returns per unit of risk over similar time horizon. If you would invest  9,361  in Nuvalent on October 12, 2024 and sell it today you would lose (1,536) from holding Nuvalent or give up 16.41% of portfolio value over 90 days.

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

Insteel Industries  vs.  Nuvalent

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 unfluctuating performance in the last few months, the Stock's forward indicators remain very healthy which may send shares a bit higher in February 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Nuvalent

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Nuvalent has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain quite persistent which may send shares a bit higher in February 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Pair Trading with Insteel Industries and Nuvalent

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

The idea behind Insteel Industries and Nuvalent 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.