Correlation Between Fastenal and MSC Industrial

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

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

Diversification Opportunities for Fastenal and MSC Industrial

0.35

Correlation Coefficient

Fastenal  MSC Industrial

Weak diversification

The 3 months correlation between Fastenal and MSC is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding Fastenal Company and MSC Industrial Direct in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MSC Industrial Direct 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 MSC Industrial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MSC Industrial Direct has no effect on the direction of Fastenal i.e., Fastenal and MSC Industrial go up and down completely randomly.

Pair Corralation between Fastenal and MSC Industrial

Given the investment horizon of 90 days Fastenal is expected to generate 1.3 times less return on investment than MSC Industrial. But when comparing it to its historical volatility, Fastenal Company is 1.26 times less risky than MSC Industrial. It trades about 0.11 of its potential returns per unit of risk. MSC Industrial Direct is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  7,233  in MSC Industrial Direct on December 28, 2024 and sell it today you would earn a total of  815.00  from holding MSC Industrial Direct or generate 11.27% return on investment over 90 days.

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

Fastenal Company  vs.  MSC Industrial Direct

Fastenal

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Fastenal Company are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, Fastenal may actually be approaching a critical reversion point that can send shares even higher in April 2025.

MSC Industrial Direct

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in MSC Industrial Direct are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady basic indicators, MSC Industrial may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Fastenal and MSC Industrial

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

The idea behind Fastenal Company and MSC Industrial Direct 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.