Correlation Between WESCO International and Fastenal

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

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

Diversification Opportunities for WESCO International and Fastenal

0.96

Correlation Coefficient

WESCO International  Fastenal

Almost no diversification

The 3 months correlation between WESCO and Fastenal is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding WESCO International and Fastenal Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fastenal and WESCO International 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 WESCO International 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 WESCO International i.e., WESCO International and Fastenal go up and down completely randomly.

Pair Corralation between WESCO International and Fastenal

Assuming the 90 days horizon WESCO International is expected to generate 1.96 times more return on investment than Fastenal. However, WESCO International is 1.96 times more volatile than Fastenal Company. It trades about 0.05 of its potential returns per unit of risk. Fastenal Company is currently generating about 0.05 per unit of risk. If you would invest  16,363  in WESCO International on September 27, 2024 and sell it today you would earn a total of  737.00  from holding WESCO International or generate 4.5% return on investment over 90 days.

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

WESCO International  vs.  Fastenal Company

WESCO International

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in WESCO International are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, WESCO International reported solid returns over the last few months and may actually be approaching a breakup point.

Fastenal

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Fastenal Company are ranked lower than 9 (%) 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 WESCO International and Fastenal

The main advantage of trading using opposite WESCO International and Fastenal positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if WESCO International 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 WESCO International 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.

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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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.