Correlation Between Insteel Industries and Mayville Engineering

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

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

Diversification Opportunities for Insteel Industries and Mayville Engineering

0.23

Correlation Coefficient

Insteel Industries  Mayville Engineering

Modest diversification

The 3 months correlation between Insteel and Mayville is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding Insteel Industries and Mayville Engineering Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mayville Engineering 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 Mayville Engineering. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mayville Engineering has no effect on the direction of Insteel Industries i.e., Insteel Industries and Mayville Engineering go up and down completely randomly.

Pair Corralation between Insteel Industries and Mayville Engineering

Given the investment horizon of 90 days Insteel Industries is expected to under-perform the Mayville Engineering. But the stock apears to be less risky and, when comparing its historical volatility, Insteel Industries is 1.01 times less risky than Mayville Engineering. The stock trades about -0.18 of its potential returns per unit of risk. The Mayville Engineering Co is currently generating about -0.05 of returns per unit of risk over similar time horizon. If you would invest  1,398  in Mayville Engineering Co on January 26, 2024 and sell it today you would lose (37.00) from holding Mayville Engineering Co or give up 2.65% of portfolio value over 90 days.

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

Insteel Industries  vs.  Mayville Engineering Co

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 recent stock price disarray, may contribute to short-term losses for the investors.

Mayville Engineering

Risk-Adjusted Performance

1 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Mayville Engineering Co are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental indicators, Mayville Engineering is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Insteel Industries and Mayville Engineering

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

The idea behind Insteel Industries and Mayville Engineering Co 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.