Correlation Between Insteel Industries and Valens

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

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

Diversification Opportunities for Insteel Industries and Valens

-0.31

Correlation Coefficient

Insteel Industries  Valens

Very good diversification

The 3 months correlation between Insteel and Valens is -0.31. Overlapping area represents the amount of risk that can be diversified away by holding Insteel Industries and Valens in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Valens 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 Valens. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Valens has no effect on the direction of Insteel Industries i.e., Insteel Industries and Valens go up and down completely randomly.

Pair Corralation between Insteel Industries and Valens

Given the investment horizon of 90 days Insteel Industries is expected to under-perform the Valens. But the stock apears to be less risky and, when comparing its historical volatility, Insteel Industries is 4.18 times less risky than Valens. The stock trades about -0.36 of its potential returns per unit of risk. The Valens is currently generating about 0.25 of returns per unit of risk over similar time horizon. If you would invest  210.00  in Valens on October 7, 2024 and sell it today you would earn a total of  74.00  from holding Valens or generate 35.24% 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.  Valens

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 latest unsteady performance, the Stock's forward indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Valens

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Valens are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of very fragile essential indicators, Valens displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Insteel Industries and Valens

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

The idea behind Insteel Industries and Valens 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.