Correlation Between Academy Sports and Insteel Industries

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

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

Diversification Opportunities for Academy Sports and Insteel Industries

0.4

Correlation Coefficient

Academy Sports  Insteel Industries

Very weak diversification

The 3 months correlation between Academy and Insteel is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding Academy Sports Outdoors and Insteel Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Insteel Industries and Academy Sports 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 Academy Sports Outdoors 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 Academy Sports i.e., Academy Sports and Insteel Industries go up and down completely randomly.

Pair Corralation between Academy Sports and Insteel Industries

Considering the 90-day investment horizon Academy Sports Outdoors is expected to under-perform the Insteel Industries. But the stock apears to be less risky and, when comparing its historical volatility, Academy Sports Outdoors is 1.02 times less risky than Insteel Industries. The stock trades about -0.07 of its potential returns per unit of risk. The Insteel Industries is currently generating about -0.05 of returns per unit of risk over similar time horizon. If you would invest  3,201  in Insteel Industries on September 14, 2024 and sell it today you would lose (256.00) from holding Insteel Industries or give up 8.0% of portfolio value over 90 days.

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

Academy Sports Outdoors  vs.  Insteel Industries

Academy Sports Outdoors

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Academy Sports Outdoors has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest inconsistent performance, the Stock's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm 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 unfluctuating 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 Academy Sports and Insteel Industries

The main advantage of trading using opposite Academy Sports and Insteel Industries positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Academy Sports 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 Academy Sports Outdoors 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.

Check out your portfolio center.

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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.