Correlation Between Fastenal and Pacific Basin

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

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

Diversification Opportunities for Fastenal and Pacific Basin

0.21

Correlation Coefficient

Fastenal  Pacific Basin

Modest diversification

The 3 months correlation between Fastenal and Pacific is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding Fastenal Company and Pacific Basin Shipping in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pacific Basin Shipping 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 Pacific Basin. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pacific Basin Shipping has no effect on the direction of Fastenal i.e., Fastenal and Pacific Basin go up and down completely randomly.

Pair Corralation between Fastenal and Pacific Basin

Given the investment horizon of 90 days Fastenal Company is expected to generate 0.64 times more return on investment than Pacific Basin. However, Fastenal Company is 1.56 times less risky than Pacific Basin. It trades about 0.05 of its potential returns per unit of risk. Pacific Basin Shipping is currently generating about -0.09 per unit of risk. If you would invest  7,105  in Fastenal Company on September 28, 2024 and sell it today you would earn a total of  337.00  from holding Fastenal Company or generate 4.74% return on investment over 90 days.

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

Fastenal Company  vs.  Pacific Basin Shipping

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.

Pacific Basin Shipping

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Pacific Basin Shipping has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unfluctuating performance in the last few months, the Stock's fundamental drivers remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Fastenal and Pacific Basin

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

The idea behind Fastenal Company and Pacific Basin Shipping 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.