Correlation Between Fastenal and WATSCO INC

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

By analyzing existing cross correlation between Fastenal Company and WATSCO INC B, you can compare the effects of market volatilities on Fastenal and WATSCO INC 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 WATSCO INC. Check out your portfolio center. Please also check ongoing floating volatility patterns of Fastenal and WATSCO INC.

Diversification Opportunities for Fastenal and WATSCO INC

-0.57

Correlation Coefficient

Fastenal  WATSCO INC

Excellent diversification

The 3 months correlation between Fastenal and WATSCO is -0.57. Overlapping area represents the amount of risk that can be diversified away by holding Fastenal Company and WATSCO INC B in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WATSCO INC B 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 WATSCO INC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WATSCO INC B has no effect on the direction of Fastenal i.e., Fastenal and WATSCO INC go up and down completely randomly.

Pair Corralation between Fastenal and WATSCO INC

Assuming the 90 days horizon Fastenal is expected to generate 1.03 times less return on investment than WATSCO INC. But when comparing it to its historical volatility, Fastenal Company is 1.08 times less risky than WATSCO INC. It trades about 0.03 of its potential returns per unit of risk. WATSCO INC B is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  42,930  in WATSCO INC B on October 15, 2024 and sell it today you would earn a total of  670.00  from holding WATSCO INC B or generate 1.56% return on investment over 90 days.

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

Fastenal Company  vs.  WATSCO INC B

Fastenal

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Fastenal Company are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Fastenal is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

WATSCO INC B

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in WATSCO INC B are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, WATSCO INC is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Fastenal and WATSCO INC

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

The idea behind Fastenal Company and WATSCO INC B 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 Transaction History module to view history of all your transactions and understand their impact on performance.