Correlation Between Insteel Industries and APPLE HOSPITALITY

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

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

Diversification Opportunities for Insteel Industries and APPLE HOSPITALITY

0.29

Correlation Coefficient

Insteel Industries  APPLE HOSPITALITY

Modest diversification

The 3 months correlation between Insteel and APPLE is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding Insteel Industries and APPLE HOSPITALITY REIT in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on APPLE HOSPITALITY REIT and Insteel Industries 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 Insteel Industries are associated (or correlated) with APPLE HOSPITALITY. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of APPLE HOSPITALITY REIT has no effect on the direction of Insteel Industries i.e., Insteel Industries and APPLE HOSPITALITY go up and down completely randomly.

Pair Corralation between Insteel Industries and APPLE HOSPITALITY

Assuming the 90 days horizon Insteel Industries is expected to generate 5.96 times less return on investment than APPLE HOSPITALITY. In addition to that, Insteel Industries is 1.31 times more volatile than APPLE HOSPITALITY REIT. It trades about 0.02 of its total potential returns per unit of risk. APPLE HOSPITALITY REIT is currently generating about 0.18 per unit of volatility. 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

Insteel Industries  vs.  APPLE HOSPITALITY REIT

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.

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.

Pair Trading with Insteel Industries and APPLE HOSPITALITY

The main advantage of trading using opposite Insteel Industries and APPLE HOSPITALITY positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Insteel Industries position performs unexpectedly, APPLE HOSPITALITY 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 APPLE HOSPITALITY will offset losses from the drop in APPLE HOSPITALITY's long position.

The idea behind Insteel Industries and APPLE HOSPITALITY REIT 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.