Correlation Between Fastenal and SST WT

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

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

Diversification Opportunities for Fastenal and SST WT

0.18

Correlation Coefficient

Fastenal  SST WT

Average diversification

The 3 months correlation between Fastenal and SST is 0.18. Overlapping area represents the amount of risk that can be diversified away by holding Fastenal Company and SST WT in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SST WT 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 SST WT. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SST WT has no effect on the direction of Fastenal i.e., Fastenal and SST WT go up and down completely randomly.

Pair Corralation between Fastenal and SST WT

Given the investment horizon of 90 days Fastenal is expected to generate 9.46 times less return on investment than SST WT. But when comparing it to its historical volatility, Fastenal Company is 12.62 times less risky than SST WT. It trades about 0.08 of its potential returns per unit of risk. SST WT is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  1.90  in SST WT on October 3, 2024 and sell it today you would lose (0.10) from holding SST WT or give up 5.26% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	12.0%
Values	Daily Returns

Fastenal Company  vs.  SST WT

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. In spite of comparatively stable basic indicators, Fastenal is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

SST WT

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in SST WT are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, SST WT unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Fastenal and SST WT

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

The idea behind Fastenal Company and SST WT 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.