Correlation Between Pool and Fastenal

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

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

Diversification Opportunities for Pool and Fastenal

0.85

Correlation Coefficient

Pool  Fastenal

Very poor diversification

The 3 months correlation between Pool and Fastenal is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Pool Corp. and Fastenal Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fastenal and Pool 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 Pool Corporation 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 Pool i.e., Pool and Fastenal go up and down completely randomly.

Pair Corralation between Pool and Fastenal

Given the investment horizon of 90 days Pool Corporation is expected to generate 0.94 times more return on investment than Fastenal. However, Pool Corporation is 1.06 times less risky than Fastenal. It trades about -0.3 of its potential returns per unit of risk. Fastenal Company is currently generating about -0.31 per unit of risk. If you would invest  40,130  in Pool Corporation on January 31, 2024 and sell it today you would lose (3,877) from holding Pool Corporation or give up 9.66% of portfolio value over 90 days.

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

Pool Corp.  vs.  Fastenal Company

Pool

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Pool Corporation has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, Pool is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

Fastenal

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Fastenal Company are ranked lower than 1 (%) 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.

Pair Trading with Pool and Fastenal

The main advantage of trading using opposite Pool and Fastenal positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Pool 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 Pool Corporation 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.