Correlation Between APPLIED MATERIALS and Insteel Industries

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

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

Diversification Opportunities for APPLIED MATERIALS and Insteel Industries

-0.27

Correlation Coefficient

APPLIED MATERIALS  Insteel Industries

Very good diversification

The 3 months correlation between APPLIED and Insteel is -0.27. Overlapping area represents the amount of risk that can be diversified away by holding APPLIED MATERIALS and Insteel Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Insteel Industries and APPLIED MATERIALS 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 APPLIED MATERIALS 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 APPLIED MATERIALS i.e., APPLIED MATERIALS and Insteel Industries go up and down completely randomly.

Pair Corralation between APPLIED MATERIALS and Insteel Industries

Assuming the 90 days trading horizon APPLIED MATERIALS is expected to under-perform the Insteel Industries. In addition to that, APPLIED MATERIALS is 1.16 times more volatile than Insteel Industries. It trades about -0.06 of its total potential returns per unit of risk. Insteel Industries is currently generating about -0.01 per unit of volatility. If you would invest  2,737  in Insteel Industries on September 29, 2024 and sell it today you would lose (57.00) from holding Insteel Industries or give up 2.08% of portfolio value over 90 days.

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

APPLIED MATERIALS  vs.  Insteel Industries

APPLIED MATERIALS

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days APPLIED MATERIALS has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private 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. Despite nearly stable basic indicators, Insteel Industries is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with APPLIED MATERIALS and Insteel Industries

The main advantage of trading using opposite APPLIED MATERIALS and Insteel Industries positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if APPLIED MATERIALS 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 APPLIED MATERIALS 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.