Correlation Between Insteel Industries and Nexstar Broadcasting

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

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

Diversification Opportunities for Insteel Industries and Nexstar Broadcasting

-0.18

Correlation Coefficient

Insteel Industries  Nexstar Broadcasting

Good diversification

The 3 months correlation between Insteel and Nexstar is -0.18. Overlapping area represents the amount of risk that can be diversified away by holding Insteel Industries and Nexstar Broadcasting Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nexstar Broadcasting 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 Nexstar Broadcasting. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nexstar Broadcasting has no effect on the direction of Insteel Industries i.e., Insteel Industries and Nexstar Broadcasting go up and down completely randomly.

Pair Corralation between Insteel Industries and Nexstar Broadcasting

Given the investment horizon of 90 days Insteel Industries is expected to generate 3.37 times less return on investment than Nexstar Broadcasting. In addition to that, Insteel Industries is 1.13 times more volatile than Nexstar Broadcasting Group. It trades about 0.03 of its total potential returns per unit of risk. Nexstar Broadcasting Group is currently generating about 0.12 per unit of volatility. If you would invest  15,519  in Nexstar Broadcasting Group on December 29, 2024 and sell it today you would earn a total of  2,430  from holding Nexstar Broadcasting Group or generate 15.66% 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.  Nexstar Broadcasting Group

Insteel Industries

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Insteel Industries are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. 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.

Nexstar Broadcasting

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Nexstar Broadcasting Group are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Nexstar Broadcasting unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Insteel Industries and Nexstar Broadcasting

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

The idea behind Insteel Industries and Nexstar Broadcasting Group 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.

Check out your portfolio center.

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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.