Correlation Between Cogent Communications and Insteel Industries

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

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

Diversification Opportunities for Cogent Communications and Insteel Industries

0.5

Correlation Coefficient

Cogent Communications  Insteel Industries

Very weak diversification

The 3 months correlation between Cogent and Insteel is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Cogent Communications Holdings and Insteel Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Insteel Industries and Cogent Communications 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 Cogent Communications Holdings 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 Cogent Communications i.e., Cogent Communications and Insteel Industries go up and down completely randomly.

Pair Corralation between Cogent Communications and Insteel Industries

Assuming the 90 days trading horizon Cogent Communications Holdings is expected to under-perform the Insteel Industries. But the stock apears to be less risky and, when comparing its historical volatility, Cogent Communications Holdings is 1.15 times less risky than Insteel Industries. The stock trades about -0.05 of its potential returns per unit of risk. The Insteel Industries is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  2,617  in Insteel Industries on October 24, 2024 and sell it today you would earn a total of  23.00  from holding Insteel Industries or generate 0.88% return on investment over 90 days.

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

Cogent Communications Holdings  vs.  Insteel Industries

Cogent Communications

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Cogent Communications Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable primary indicators, Cogent Communications is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Insteel Industries

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Insteel Industries are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. 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.

Pair Trading with Cogent Communications and Insteel Industries

The main advantage of trading using opposite Cogent Communications and Insteel Industries positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cogent Communications 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 Cogent Communications Holdings 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.