Correlation Between Insteel Industries and DICKS Sporting

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

By analyzing existing cross correlation between Insteel Industries and DICKS Sporting Goods, you can compare the effects of market volatilities on Insteel Industries and DICKS Sporting 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 DICKS Sporting. Check out your portfolio center. Please also check ongoing floating volatility patterns of Insteel Industries and DICKS Sporting.

Diversification Opportunities for Insteel Industries and DICKS Sporting

0.36

Correlation Coefficient

Insteel Industries  DICKS Sporting

Weak diversification

The 3 months correlation between Insteel and DICKS is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding Insteel Industries and DICKS Sporting Goods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DICKS Sporting Goods 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 DICKS Sporting. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DICKS Sporting Goods has no effect on the direction of Insteel Industries i.e., Insteel Industries and DICKS Sporting go up and down completely randomly.

Pair Corralation between Insteel Industries and DICKS Sporting

Assuming the 90 days horizon Insteel Industries is expected to generate 3.32 times less return on investment than DICKS Sporting. But when comparing it to its historical volatility, Insteel Industries is 1.06 times less risky than DICKS Sporting. It trades about 0.02 of its potential returns per unit of risk. DICKS Sporting Goods is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  18,539  in DICKS Sporting Goods on September 12, 2024 and sell it today you would earn a total of  1,816  from holding DICKS Sporting Goods or generate 9.8% 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.  DICKS Sporting Goods

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.

DICKS Sporting Goods

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in DICKS Sporting Goods are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, DICKS Sporting may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Insteel Industries and DICKS Sporting

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

The idea behind Insteel Industries and DICKS Sporting Goods 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.