Correlation Between Now and Fastenal

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

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

Diversification Opportunities for Now and Fastenal

0.71

Correlation Coefficient

Now  Fastenal

Poor diversification

The 3 months correlation between Now and Fastenal is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Now Inc and Fastenal Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fastenal and Now 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 Now Inc are associated (or correlated) with Fastenal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fastenal has no effect on the direction of Now i.e., Now and Fastenal go up and down completely randomly.

Pair Corralation between Now and Fastenal

Given the investment horizon of 90 days Now Inc is expected to under-perform the Fastenal. In addition to that, Now is 1.46 times more volatile than Fastenal Company. It trades about -0.47 of its total potential returns per unit of risk. Fastenal Company is currently generating about -0.6 per unit of volatility. If you would invest  8,410  in Fastenal Company on September 27, 2024 and sell it today you would lose (967.00) from holding Fastenal Company or give up 11.5% of portfolio value over 90 days.

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

Now Inc  vs.  Fastenal Company

Now Inc

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Now Inc are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Now is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Fastenal

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Fastenal Company are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Fastenal is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Now and Fastenal

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

The idea behind Now Inc and Fastenal Company 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.