Correlation Between Insteel Industries and Boston Properties

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

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

Diversification Opportunities for Insteel Industries and Boston Properties

-0.38

Correlation Coefficient

Insteel Industries  Boston Properties

Very good diversification

The 3 months correlation between Insteel and Boston is -0.38. Overlapping area represents the amount of risk that can be diversified away by holding Insteel Industries and Boston Properties in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Boston Properties 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 Boston Properties. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Boston Properties has no effect on the direction of Insteel Industries i.e., Insteel Industries and Boston Properties go up and down completely randomly.

Pair Corralation between Insteel Industries and Boston Properties

Given the investment horizon of 90 days Insteel Industries is expected to generate 0.77 times more return on investment than Boston Properties. However, Insteel Industries is 1.3 times less risky than Boston Properties. It trades about -0.05 of its potential returns per unit of risk. Boston Properties is currently generating about -0.13 per unit of risk. If you would invest  2,974  in Insteel Industries on September 21, 2024 and sell it today you would lose (65.00) from holding Insteel Industries or give up 2.19% of portfolio value over 90 days.

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

Insteel Industries  vs.  Boston Properties

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. In spite of latest unsteady performance, the Stock's forward indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Boston Properties

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Boston Properties has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest fragile performance, the Stock's basic indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail investors.

Pair Trading with Insteel Industries and Boston Properties

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

The idea behind Insteel Industries and Boston Properties 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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.