Correlation Between SG Blocks and Insteel Industries

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

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

Diversification Opportunities for SG Blocks and Insteel Industries

-0.34

Correlation Coefficient

SG Blocks  Insteel Industries

Very good diversification

The 3 months correlation between SGBX and Insteel is -0.34. Overlapping area represents the amount of risk that can be diversified away by holding SG Blocks and Insteel Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Insteel Industries and SG Blocks 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 SG Blocks 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 SG Blocks i.e., SG Blocks and Insteel Industries go up and down completely randomly.

Pair Corralation between SG Blocks and Insteel Industries

Given the investment horizon of 90 days SG Blocks is expected to generate 8.57 times more return on investment than Insteel Industries. However, SG Blocks is 8.57 times more volatile than Insteel Industries. It trades about 0.02 of its potential returns per unit of risk. Insteel Industries is currently generating about -0.21 per unit of risk. If you would invest  52.00  in SG Blocks on September 23, 2024 and sell it today you would lose (6.00) from holding SG Blocks or give up 11.54% of portfolio value over 90 days.

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

SG Blocks  vs.  Insteel Industries

SG Blocks

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SG Blocks 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 fundamental drivers remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company 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 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.

Pair Trading with SG Blocks and Insteel Industries

The main advantage of trading using opposite SG Blocks and Insteel Industries positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SG Blocks 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 SG Blocks 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.