Correlation Between Insteel Industries and Interactive Brokers

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

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

Diversification Opportunities for Insteel Industries and Interactive Brokers

0.26

Correlation Coefficient

Insteel Industries  Interactive Brokers

Modest diversification

The 3 months correlation between Insteel and Interactive is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding Insteel Industries and Interactive Brokers Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Interactive Brokers 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 Interactive Brokers. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Interactive Brokers has no effect on the direction of Insteel Industries i.e., Insteel Industries and Interactive Brokers go up and down completely randomly.

Pair Corralation between Insteel Industries and Interactive Brokers

Given the investment horizon of 90 days Insteel Industries is expected to under-perform the Interactive Brokers. But the stock apears to be less risky and, when comparing its historical volatility, Insteel Industries is 1.04 times less risky than Interactive Brokers. The stock trades about -0.08 of its potential returns per unit of risk. The Interactive Brokers Group is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  13,918  in Interactive Brokers Group on September 30, 2024 and sell it today you would earn a total of  3,982  from holding Interactive Brokers Group or generate 28.61% 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.  Interactive Brokers Group

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 unfluctuating 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.

Interactive Brokers

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Interactive Brokers Group are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Even with relatively fragile forward-looking signals, Interactive Brokers reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Insteel Industries and Interactive Brokers

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

The idea behind Insteel Industries and Interactive Brokers Group 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.