Correlation Between MSC Industrial and Applied Industrial

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

By analyzing existing cross correlation between MSC Industrial Direct and Applied Industrial Technologies, you can compare the effects of market volatilities on MSC Industrial and Applied Industrial 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 MSC Industrial with a short position of Applied Industrial. Check out your portfolio center. Please also check ongoing floating volatility patterns of MSC Industrial and Applied Industrial.

Diversification Opportunities for MSC Industrial and Applied Industrial

0.7

Correlation Coefficient

MSC Industrial  Applied Industrial

Poor diversification

The 3 months correlation between MSC and Applied is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding MSC Industrial Direct and Applied Industrial Technologie in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Applied Industrial and MSC Industrial 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 MSC Industrial Direct are associated (or correlated) with Applied Industrial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Applied Industrial has no effect on the direction of MSC Industrial i.e., MSC Industrial and Applied Industrial go up and down completely randomly.

Pair Corralation between MSC Industrial and Applied Industrial

Considering the 90-day investment horizon MSC Industrial is expected to generate 5.22 times less return on investment than Applied Industrial. But when comparing it to its historical volatility, MSC Industrial Direct is 1.09 times less risky than Applied Industrial. It trades about 0.04 of its potential returns per unit of risk. Applied Industrial Technologies is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  20,484  in Applied Industrial Technologies on August 30, 2024 and sell it today you would earn a total of  6,906  from holding Applied Industrial Technologies or generate 33.71% return on investment over 90 days.

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

MSC Industrial Direct  vs.  Applied Industrial Technologie

MSC Industrial Direct

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in MSC Industrial Direct are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, MSC Industrial is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Applied Industrial

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Applied Industrial Technologies are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unfluctuating forward indicators, Applied Industrial unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with MSC Industrial and Applied Industrial

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

The idea behind MSC Industrial Direct and Applied Industrial Technologies 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.