Correlation Between InterContinental and Insteel Industries

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

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

Diversification Opportunities for InterContinental and Insteel Industries

0.54

Correlation Coefficient

InterContinental  Insteel Industries

Very weak diversification

The 3 months correlation between InterContinental and Insteel is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding InterContinental Hotels Group and Insteel Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Insteel Industries and InterContinental 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 InterContinental Hotels Group 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 InterContinental i.e., InterContinental and Insteel Industries go up and down completely randomly.

Pair Corralation between InterContinental and Insteel Industries

Assuming the 90 days trading horizon InterContinental Hotels Group is expected to generate 1.2 times more return on investment than Insteel Industries. However, InterContinental is 1.2 times more volatile than Insteel Industries. It trades about 0.08 of its potential returns per unit of risk. Insteel Industries is currently generating about -0.31 per unit of risk. If you would invest  11,700  in InterContinental Hotels Group on September 25, 2024 and sell it today you would earn a total of  300.00  from holding InterContinental Hotels Group or generate 2.56% return on investment over 90 days.

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

InterContinental Hotels Group  vs.  Insteel Industries

InterContinental Hotels

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in InterContinental Hotels Group are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, InterContinental reported solid returns over the last few months and may actually be approaching a breakup point.

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.

Pair Trading with InterContinental and Insteel Industries

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

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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 Top Crypto Exchanges module to search and analyze digital assets across top global cryptocurrency exchanges.