Correlation Between Mueller Industries and Insteel Industries

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

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

Diversification Opportunities for Mueller Industries and Insteel Industries

-0.1

Correlation Coefficient

Mueller Industries  Insteel Industries

Good diversification

The 3 months correlation between Mueller and Insteel is -0.1. Overlapping area represents the amount of risk that can be diversified away by holding Mueller Industries and Insteel Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Insteel Industries and Mueller 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 Mueller Industries 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 Mueller Industries i.e., Mueller Industries and Insteel Industries go up and down completely randomly.

Pair Corralation between Mueller Industries and Insteel Industries

Considering the 90-day investment horizon Mueller Industries is expected to generate 0.83 times more return on investment than Insteel Industries. However, Mueller Industries is 1.2 times less risky than Insteel Industries. It trades about 0.12 of its potential returns per unit of risk. Insteel Industries is currently generating about -0.05 per unit of risk. If you would invest  4,912  in Mueller Industries on February 2, 2024 and sell it today you would earn a total of  697.00  from holding Mueller Industries or generate 14.19% return on investment over 90 days.

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

Mueller Industries  vs.  Insteel Industries

Mueller Industries

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Mueller Industries are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite fairly unfluctuating essential indicators, Mueller Industries demonstrated solid returns over the last few months and may actually be approaching a breakup point.

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 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.

Pair Trading with Mueller Industries and Insteel Industries

The main advantage of trading using opposite Mueller Industries and Insteel Industries positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Mueller Industries 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 Mueller Industries 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.