Correlation Between Insteel Industries and Relx PLC

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

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

Diversification Opportunities for Insteel Industries and Relx PLC

0.05

Correlation Coefficient

Insteel Industries  Relx PLC

Significant diversification

The 3 months correlation between Insteel and Relx is 0.05. Overlapping area represents the amount of risk that can be diversified away by holding Insteel Industries and Relx PLC ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Relx PLC ADR 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 Relx PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Relx PLC ADR has no effect on the direction of Insteel Industries i.e., Insteel Industries and Relx PLC go up and down completely randomly.

Pair Corralation between Insteel Industries and Relx PLC

Given the investment horizon of 90 days Insteel Industries is expected to under-perform the Relx PLC. In addition to that, Insteel Industries is 2.26 times more volatile than Relx PLC ADR. It trades about -0.27 of its total potential returns per unit of risk. Relx PLC ADR is currently generating about -0.16 per unit of volatility. If you would invest  4,657  in Relx PLC ADR on September 24, 2024 and sell it today you would lose (110.00) from holding Relx PLC ADR or give up 2.36% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	95.24%
Values	Daily Returns

Insteel Industries  vs.  Relx PLC ADR

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.

Relx PLC ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Relx PLC ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong essential indicators, Relx PLC is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Insteel Industries and Relx PLC

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

The idea behind Insteel Industries and Relx PLC ADR 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.