Correlation Between Fastenal and Toromont Industries

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

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

Diversification Opportunities for Fastenal and Toromont Industries

-0.78

Correlation Coefficient

Fastenal  Toromont Industries

Pay attention - limited upside

The 3 months correlation between Fastenal and Toromont is -0.78. Overlapping area represents the amount of risk that can be diversified away by holding Fastenal Company and Toromont Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Toromont Industries and Fastenal 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 Fastenal Company are associated (or correlated) with Toromont Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Toromont Industries has no effect on the direction of Fastenal i.e., Fastenal and Toromont Industries go up and down completely randomly.

Pair Corralation between Fastenal and Toromont Industries

Assuming the 90 days horizon Fastenal Company is expected to under-perform the Toromont Industries. But the stock apears to be less risky and, when comparing its historical volatility, Fastenal Company is 4.72 times less risky than Toromont Industries. The stock trades about -0.51 of its potential returns per unit of risk. The Toromont Industries is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  7,845  in Toromont Industries on September 27, 2024 and sell it today you would lose (295.00) from holding Toromont Industries or give up 3.76% of portfolio value over 90 days.

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

Fastenal Company  vs.  Toromont Industries

Fastenal

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Fastenal Company are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Fastenal reported solid returns over the last few months and may actually be approaching a breakup point.

Toromont Industries

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Toromont Industries has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest uncertain performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Fastenal and Toromont Industries

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

The idea behind Fastenal Company and Toromont 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.

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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.