Correlation Between Insteel Industries and Pebblebrook Hotel

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

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

Diversification Opportunities for Insteel Industries and Pebblebrook Hotel

0.65

Correlation Coefficient

Insteel Industries  Pebblebrook Hotel

Poor diversification

The 3 months correlation between Insteel and Pebblebrook is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Insteel Industries and Pebblebrook Hotel Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pebblebrook Hotel Trust 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 Pebblebrook Hotel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pebblebrook Hotel Trust has no effect on the direction of Insteel Industries i.e., Insteel Industries and Pebblebrook Hotel go up and down completely randomly.

Pair Corralation between Insteel Industries and Pebblebrook Hotel

Assuming the 90 days horizon Insteel Industries is expected to under-perform the Pebblebrook Hotel. But the stock apears to be less risky and, when comparing its historical volatility, Insteel Industries is 1.52 times less risky than Pebblebrook Hotel. The stock trades about -0.31 of its potential returns per unit of risk. The Pebblebrook Hotel Trust is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  1,290  in Pebblebrook Hotel Trust on September 25, 2024 and sell it today you would lose (20.00) from holding Pebblebrook Hotel Trust or give up 1.55% of portfolio value over 90 days.

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

Insteel Industries  vs.  Pebblebrook Hotel Trust

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 current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pebblebrook Hotel Trust

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Pebblebrook Hotel Trust are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Pebblebrook Hotel may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Insteel Industries and Pebblebrook Hotel

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

The idea behind Insteel Industries and Pebblebrook Hotel Trust 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.