Correlation Between Transcat and Fastenal

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

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

Diversification Opportunities for Transcat and Fastenal

-0.56

Correlation Coefficient

Transcat  Fastenal

Excellent diversification

The 3 months correlation between Transcat and Fastenal is -0.56. Overlapping area represents the amount of risk that can be diversified away by holding Transcat and Fastenal Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fastenal and Transcat 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 Transcat 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 Transcat i.e., Transcat and Fastenal go up and down completely randomly.

Pair Corralation between Transcat and Fastenal

Given the investment horizon of 90 days Transcat is expected to generate 1.13 times less return on investment than Fastenal. In addition to that, Transcat is 1.84 times more volatile than Fastenal Company. It trades about 0.03 of its total potential returns per unit of risk. Fastenal Company is currently generating about 0.07 per unit of volatility. If you would invest  5,077  in Fastenal Company on September 27, 2024 and sell it today you would earn a total of  2,366  from holding Fastenal Company or generate 46.6% return on investment over 90 days.

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

Transcat  vs.  Fastenal Company

Transcat

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Transcat has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Fastenal

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Fastenal Company are ranked lower than 4 (%) 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.

Pair Trading with Transcat and Fastenal

The main advantage of trading using opposite Transcat and Fastenal positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Transcat 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 Transcat 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.