Correlation Between ScanSource and Insteel Industries

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

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

Diversification Opportunities for ScanSource and Insteel Industries

0.73

Correlation Coefficient

ScanSource  Insteel Industries

Poor diversification

The 3 months correlation between ScanSource and Insteel is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding ScanSource and Insteel Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Insteel Industries and ScanSource 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 ScanSource 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 ScanSource i.e., ScanSource and Insteel Industries go up and down completely randomly.

Pair Corralation between ScanSource and Insteel Industries

Assuming the 90 days horizon ScanSource is expected to generate 0.96 times more return on investment than Insteel Industries. However, ScanSource is 1.04 times less risky than Insteel Industries. It trades about 0.08 of its potential returns per unit of risk. Insteel Industries is currently generating about 0.0 per unit of risk. If you would invest  2,860  in ScanSource on September 26, 2024 and sell it today you would earn a total of  1,700  from holding ScanSource or generate 59.44% return on investment over 90 days.

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

ScanSource  vs.  Insteel Industries

ScanSource

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in ScanSource are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, ScanSource may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Insteel Industries

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Insteel Industries are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. 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 ScanSource and Insteel Industries

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

Check out your portfolio center.

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 Anywhere module to track or share privately all of your investments from the convenience of any device.