Correlation Between APPLE HOSPITALITY and Insteel Industries

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

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

Diversification Opportunities for APPLE HOSPITALITY and Insteel Industries

0.29

Correlation Coefficient

APPLE HOSPITALITY  Insteel Industries

Modest diversification

The 3 months correlation between APPLE and Insteel is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding APPLE HOSPITALITY REIT and Insteel Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Insteel Industries and APPLE HOSPITALITY 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 APPLE HOSPITALITY REIT 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 APPLE HOSPITALITY i.e., APPLE HOSPITALITY and Insteel Industries go up and down completely randomly.

Pair Corralation between APPLE HOSPITALITY and Insteel Industries

Assuming the 90 days horizon APPLE HOSPITALITY REIT is expected to generate 0.76 times more return on investment than Insteel Industries. However, APPLE HOSPITALITY REIT is 1.31 times less risky than Insteel Industries. It trades about 0.18 of its potential returns per unit of risk. Insteel Industries is currently generating about 0.02 per unit of risk. If you would invest  1,244  in APPLE HOSPITALITY REIT on September 12, 2024 and sell it today you would earn a total of  264.00  from holding APPLE HOSPITALITY REIT or generate 21.22% return on investment over 90 days.

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

APPLE HOSPITALITY REIT  vs.  Insteel Industries

APPLE HOSPITALITY REIT

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in APPLE HOSPITALITY REIT are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, APPLE HOSPITALITY reported solid returns over the last few months and may actually be approaching a breakup point.

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 APPLE HOSPITALITY and Insteel Industries

The main advantage of trading using opposite APPLE HOSPITALITY and Insteel Industries positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if APPLE HOSPITALITY 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 APPLE HOSPITALITY REIT 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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.