Can any of the company-specific risk be diversified away by investing in both Olympic Steel 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 Olympic Steel and Insteel Industries into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Olympic Steel and Insteel Industries, you can compare the effects of market volatilities on Olympic Steel 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 Olympic Steel with a short position of Insteel Industries. Check out your portfolio center. Please also check ongoing floating volatility patterns of Olympic Steel and Insteel Industries.
Diversification Opportunities for Olympic Steel and Insteel Industries
The 3 months correlation between Olympic and Insteel is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Olympic Steel and Insteel Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Insteel Industries and Olympic Steel 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 Olympic Steel 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 Olympic Steel i.e., Olympic Steel and Insteel Industries go up and down completely randomly.
Pair Corralation between Olympic Steel and Insteel Industries
Given the investment horizon of 90 days Olympic Steel is expected to generate 1.18 times more return on investment than Insteel Industries. However, Olympic Steel is 1.18 times more volatile than Insteel Industries. It trades about 0.05 of its potential returns per unit of risk. Insteel Industries is currently generating about 0.0 per unit of risk. If you would invest 3,054 in Olympic Steel on March 6, 2024 and sell it today you would earn a total of 1,853 from holding Olympic Steel or generate 60.67% return on investment over 90 days.
Over the last 90 days Olympic Steel has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in July 2024. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.
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.