Correlation Between Lion One and Insteel Industries

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

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

Diversification Opportunities for Lion One and Insteel Industries

-0.29

Correlation Coefficient

Lion One  Insteel Industries

Very good diversification

The 3 months correlation between Lion and Insteel is -0.29. Overlapping area represents the amount of risk that can be diversified away by holding Lion One Metals and Insteel Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Insteel Industries and Lion One 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 Lion One Metals 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 Lion One i.e., Lion One and Insteel Industries go up and down completely randomly.

Pair Corralation between Lion One and Insteel Industries

Assuming the 90 days horizon Lion One Metals is expected to under-perform the Insteel Industries. In addition to that, Lion One is 1.37 times more volatile than Insteel Industries. It trades about -0.11 of its total potential returns per unit of risk. Insteel Industries is currently generating about -0.04 per unit of volatility. If you would invest  3,201  in Insteel Industries on September 16, 2024 and sell it today you would lose (240.00) from holding Insteel Industries or give up 7.5% of portfolio value over 90 days.

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

Lion One Metals  vs.  Insteel Industries

Lion One Metals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Lion One Metals has generated negative risk-adjusted returns adding no value to investors with long positions. Despite abnormal performance in the last few months, the Stock's essential indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

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 very healthy forward indicators, Insteel Industries is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Lion One and Insteel Industries

The main advantage of trading using opposite Lion One and Insteel Industries positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Lion One 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 Lion One Metals 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.