Correlation Between Applied Industrial and WESCO International

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

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

Diversification Opportunities for Applied Industrial and WESCO International

0.93

Correlation Coefficient

Applied Industrial  WESCO International

Almost no diversification

The 3 months correlation between Applied and WESCO is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Applied Industrial Technologie and WESCO International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WESCO International and Applied Industrial 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 Applied Industrial Technologies are associated (or correlated) with WESCO International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WESCO International has no effect on the direction of Applied Industrial i.e., Applied Industrial and WESCO International go up and down completely randomly.

Pair Corralation between Applied Industrial and WESCO International

Considering the 90-day investment horizon Applied Industrial Technologies is expected to generate 0.75 times more return on investment than WESCO International. However, Applied Industrial Technologies is 1.33 times less risky than WESCO International. It trades about -0.01 of its potential returns per unit of risk. WESCO International is currently generating about -0.07 per unit of risk. If you would invest  23,824  in Applied Industrial Technologies on December 28, 2024 and sell it today you would lose (602.00) from holding Applied Industrial Technologies or give up 2.53% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	98.36%
Values	Daily Returns

Applied Industrial Technologie  vs.  WESCO International

Applied Industrial

Risk-Adjusted Performance

Very Weak

Over the last 90 days Applied Industrial Technologies has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable forward indicators, Applied Industrial is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

WESCO International

Risk-Adjusted Performance

Very Weak

Over the last 90 days WESCO International has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with Applied Industrial and WESCO International

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

The idea behind Applied Industrial Technologies and WESCO International 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.