Correlation Between WW Grainger and Fastenal

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

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

Diversification Opportunities for WW Grainger and Fastenal

0.97

Correlation Coefficient

WW Grainger  Fastenal

Almost no diversification

The 3 months correlation between GWW and Fastenal is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding WW Grainger and Fastenal Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fastenal and WW Grainger 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 WW Grainger are associated (or correlated) with Fastenal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fastenal has no effect on the direction of WW Grainger i.e., WW Grainger and Fastenal go up and down completely randomly.

Pair Corralation between WW Grainger and Fastenal

Assuming the 90 days horizon WW Grainger is expected to generate 1.14 times more return on investment than Fastenal. However, WW Grainger is 1.14 times more volatile than Fastenal Company. It trades about 0.1 of its potential returns per unit of risk. Fastenal Company is currently generating about 0.08 per unit of risk. If you would invest  50,762  in WW Grainger on September 26, 2024 and sell it today you would earn a total of  52,688  from holding WW Grainger or generate 103.79% return on investment over 90 days.

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

WW Grainger  vs.  Fastenal Company

WW Grainger

Risk-Adjusted Performance

9 of 100

OK

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

Fastenal

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Fastenal Company are ranked lower than 10 (%) 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.

Pair Trading with WW Grainger and Fastenal

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

The idea behind WW Grainger and Fastenal Company 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.