Correlation Between Insteel Industries and STORE ELECTRONIC

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

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

Diversification Opportunities for Insteel Industries and STORE ELECTRONIC

0.02

Correlation Coefficient

Insteel Industries  STORE ELECTRONIC

Significant diversification

The 3 months correlation between Insteel and STORE is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding Insteel Industries and STORE ELECTRONIC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on STORE ELECTRONIC 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 STORE ELECTRONIC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of STORE ELECTRONIC has no effect on the direction of Insteel Industries i.e., Insteel Industries and STORE ELECTRONIC go up and down completely randomly.

Pair Corralation between Insteel Industries and STORE ELECTRONIC

Assuming the 90 days horizon Insteel Industries is expected to generate 1.19 times more return on investment than STORE ELECTRONIC. However, Insteel Industries is 1.19 times more volatile than STORE ELECTRONIC. It trades about 0.01 of its potential returns per unit of risk. STORE ELECTRONIC is currently generating about -0.07 per unit of risk. If you would invest  2,817  in Insteel Industries on September 14, 2024 and sell it today you would lose (17.00) from holding Insteel Industries or give up 0.6% of portfolio value over 90 days.

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

Insteel Industries  vs.  STORE ELECTRONIC

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

STORE ELECTRONIC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days STORE ELECTRONIC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's primary indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with Insteel Industries and STORE ELECTRONIC

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

The idea behind Insteel Industries and STORE ELECTRONIC 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.