Correlation Between Fastenal and Foundation Building

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

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

Diversification Opportunities for Fastenal and Foundation Building

0.0

Correlation Coefficient

Fastenal  Foundation Building

Pay attention - limited upside

The 3 months correlation between Fastenal and Foundation is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Fastenal Company and Foundation Building Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Foundation Building 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 Foundation Building. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Foundation Building has no effect on the direction of Fastenal i.e., Fastenal and Foundation Building go up and down completely randomly.

Pair Corralation between Fastenal and Foundation Building

If you would invest (100.00) in Foundation Building Materials on January 20, 2024 and sell it today you would earn a total of  100.00  from holding Foundation Building Materials or generate -100.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	0.0%
Values	Daily Returns

Fastenal Company  vs.  Foundation Building Materials

Fastenal

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Fastenal Company has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

Foundation Building

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Foundation Building Materials has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy fundamental drivers, Foundation Building is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Fastenal and Foundation Building

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

The idea behind Fastenal Company and Foundation Building Materials 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.