Correlation Between Sapiens International and Insteel Industries

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

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

Diversification Opportunities for Sapiens International and Insteel Industries

0.45

Correlation Coefficient

Sapiens International  Insteel Industries

Very weak diversification

The 3 months correlation between Sapiens and Insteel is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding Sapiens International and Insteel Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Insteel Industries and Sapiens International 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 Sapiens International 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 Sapiens International i.e., Sapiens International and Insteel Industries go up and down completely randomly.

Pair Corralation between Sapiens International and Insteel Industries

Given the investment horizon of 90 days Sapiens International is expected to under-perform the Insteel Industries. But the stock apears to be less risky and, when comparing its historical volatility, Sapiens International is 1.54 times less risky than Insteel Industries. The stock trades about 0.0 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  2,796  in Insteel Industries on December 26, 2024 and sell it today you would lose (16.00) from holding Insteel Industries or give up 0.57% of portfolio value over 90 days.

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

Sapiens International  vs.  Insteel Industries

Sapiens International

Risk-Adjusted Performance

Very Weak

Over the last 90 days Sapiens International has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Sapiens International is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Insteel Industries

Risk-Adjusted Performance

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 very healthy forward indicators, Insteel Industries is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Sapiens International and Insteel Industries

The main advantage of trading using opposite Sapiens International and Insteel Industries positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Sapiens International 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 Sapiens International 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.