Correlation Between Insteel Industries and Texas Roadhouse

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

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

Diversification Opportunities for Insteel Industries and Texas Roadhouse

-0.14

Correlation Coefficient

Insteel Industries  Texas Roadhouse

Good diversification

The 3 months correlation between Insteel and Texas is -0.14. Overlapping area represents the amount of risk that can be diversified away by holding Insteel Industries and Texas Roadhouse in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Texas Roadhouse 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 Texas Roadhouse. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Texas Roadhouse has no effect on the direction of Insteel Industries i.e., Insteel Industries and Texas Roadhouse go up and down completely randomly.

Pair Corralation between Insteel Industries and Texas Roadhouse

Given the investment horizon of 90 days Insteel Industries is expected to generate 4.6 times less return on investment than Texas Roadhouse. In addition to that, Insteel Industries is 1.5 times more volatile than Texas Roadhouse. It trades about 0.02 of its total potential returns per unit of risk. Texas Roadhouse is currently generating about 0.11 per unit of volatility. If you would invest  8,782  in Texas Roadhouse on September 20, 2024 and sell it today you would earn a total of  9,504  from holding Texas Roadhouse or generate 108.22% 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.  Texas Roadhouse

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.

Texas Roadhouse

Risk-Adjusted Performance

6 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Texas Roadhouse are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite fairly uncertain basic indicators, Texas Roadhouse may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Insteel Industries and Texas Roadhouse

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

The idea behind Insteel Industries and Texas Roadhouse 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.