Correlation Between NORTHEAST UTILITIES and Insteel Industries

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Can any of the company-specific risk be diversified away by investing in both NORTHEAST UTILITIES and Insteel Industries 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 NORTHEAST UTILITIES and Insteel Industries into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between NORTHEAST UTILITIES and Insteel Industries, you can compare the effects of market volatilities on NORTHEAST UTILITIES and Insteel Industries 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 NORTHEAST UTILITIES with a short position of Insteel Industries. Check out your portfolio center. Please also check ongoing floating volatility patterns of NORTHEAST UTILITIES and Insteel Industries.

Diversification Opportunities for NORTHEAST UTILITIES and Insteel Industries

-0.17
  Correlation Coefficient

Good diversification

The 3 months correlation between NORTHEAST and Insteel is -0.17. Overlapping area represents the amount of risk that can be diversified away by holding NORTHEAST UTILITIES and Insteel Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Insteel Industries and NORTHEAST UTILITIES 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 NORTHEAST UTILITIES are associated (or correlated) with Insteel Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Insteel Industries has no effect on the direction of NORTHEAST UTILITIES i.e., NORTHEAST UTILITIES and Insteel Industries go up and down completely randomly.

Pair Corralation between NORTHEAST UTILITIES and Insteel Industries

Assuming the 90 days trading horizon NORTHEAST UTILITIES is expected to under-perform the Insteel Industries. But the stock apears to be less risky and, when comparing its historical volatility, NORTHEAST UTILITIES is 1.56 times less risky than Insteel Industries. The stock trades about -0.03 of its potential returns per unit of risk. The Insteel Industries is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  2,651  in Insteel Industries on October 5, 2024 and sell it today you would lose (31.00) from holding Insteel Industries or give up 1.17% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

NORTHEAST UTILITIES  vs.  Insteel Industries

 Performance 
       Timeline  
NORTHEAST UTILITIES 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days NORTHEAST UTILITIES has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound forward-looking indicators, NORTHEAST UTILITIES is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.
Insteel Industries 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Insteel Industries has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Insteel Industries is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

NORTHEAST UTILITIES and Insteel Industries Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with NORTHEAST UTILITIES and Insteel Industries

The main advantage of trading using opposite NORTHEAST UTILITIES and Insteel Industries positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NORTHEAST UTILITIES position performs unexpectedly, Insteel Industries 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 Insteel Industries will offset losses from the drop in Insteel Industries' long position.
The idea behind NORTHEAST UTILITIES and Insteel Industries 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..

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