Correlation Between Fastenal and Titan Machinery

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

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

Diversification Opportunities for Fastenal and Titan Machinery

0.84

Correlation Coefficient

Fastenal  Titan Machinery

Very poor diversification

The 3 months correlation between Fastenal and Titan is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Fastenal Company and Titan Machinery in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Titan Machinery 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 Titan Machinery. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Titan Machinery has no effect on the direction of Fastenal i.e., Fastenal and Titan Machinery go up and down completely randomly.

Pair Corralation between Fastenal and Titan Machinery

Assuming the 90 days horizon Fastenal Company is expected to generate 0.38 times more return on investment than Titan Machinery. However, Fastenal Company is 2.6 times less risky than Titan Machinery. It trades about -0.53 of its potential returns per unit of risk. Titan Machinery is currently generating about -0.23 per unit of risk. If you would invest  8,003  in Fastenal Company on September 24, 2024 and sell it today you would lose (795.00) from holding Fastenal Company or give up 9.93% of portfolio value over 90 days.

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

Fastenal Company  vs.  Titan Machinery

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.

Titan Machinery

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Titan Machinery are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Titan Machinery may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Fastenal and Titan Machinery

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

The idea behind Fastenal Company and Titan Machinery 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.