Correlation Between Fastenal and Tianjin Capital

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

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

Diversification Opportunities for Fastenal and Tianjin Capital

0.79

Correlation Coefficient

Fastenal  Tianjin Capital

Poor diversification

The 3 months correlation between Fastenal and Tianjin is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Fastenal Company and Tianjin Capital Environmental in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tianjin Capital Envi 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 Tianjin Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tianjin Capital Envi has no effect on the direction of Fastenal i.e., Fastenal and Tianjin Capital go up and down completely randomly.

Pair Corralation between Fastenal and Tianjin Capital

Given the investment horizon of 90 days Fastenal is expected to generate 11.21 times less return on investment than Tianjin Capital. But when comparing it to its historical volatility, Fastenal Company is 5.98 times less risky than Tianjin Capital. It trades about 0.05 of its potential returns per unit of risk. Tianjin Capital Environmental is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  15.00  in Tianjin Capital Environmental on September 24, 2024 and sell it today you would earn a total of  23.00  from holding Tianjin Capital Environmental or generate 153.33% return on investment over 90 days.

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

Fastenal Company  vs.  Tianjin Capital Environmental

Fastenal

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Fastenal Company are ranked lower than 3 (%) 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.

Tianjin Capital Envi

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Tianjin Capital Environmental are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain forward indicators, Tianjin Capital may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Fastenal and Tianjin Capital

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

The idea behind Fastenal Company and Tianjin Capital Environmental 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.