Correlation Between PACCAR and Insteel Industries

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

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

Diversification Opportunities for PACCAR and Insteel Industries

0.49

Correlation Coefficient

PACCAR  Insteel Industries

Very weak diversification

The 3 months correlation between PACCAR and Insteel is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding PACCAR Inc and Insteel Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Insteel Industries and PACCAR 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 PACCAR Inc 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 PACCAR i.e., PACCAR and Insteel Industries go up and down completely randomly.

Pair Corralation between PACCAR and Insteel Industries

Given the investment horizon of 90 days PACCAR Inc is expected to generate 0.9 times more return on investment than Insteel Industries. However, PACCAR Inc is 1.11 times less risky than Insteel Industries. It trades about -0.11 of its potential returns per unit of risk. Insteel Industries is currently generating about -0.61 per unit of risk. If you would invest  11,215  in PACCAR Inc on October 11, 2024 and sell it today you would lose (365.00) from holding PACCAR Inc or give up 3.25% of portfolio value over 90 days.

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

PACCAR Inc  vs.  Insteel Industries

PACCAR Inc

Risk-Adjusted Performance

4 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in PACCAR Inc are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable basic indicators, PACCAR is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

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 unfluctuating performance in the last few months, the Stock's forward indicators remain very healthy which may send shares a bit higher in February 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with PACCAR and Insteel Industries

The main advantage of trading using opposite PACCAR and Insteel Industries positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if PACCAR 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 PACCAR Inc 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.