Correlation Between Crane and Fastenal

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Can any of the company-specific risk be diversified away by investing in both Crane 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 Crane and Fastenal into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Crane Company and Fastenal Company, you can compare the effects of market volatilities on Crane 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 Crane with a short position of Fastenal. Check out your portfolio center. Please also check ongoing floating volatility patterns of Crane and Fastenal.

Diversification Opportunities for Crane and Fastenal

0.83
  Correlation Coefficient

Very poor diversification

The 3 months correlation between Crane and Fastenal is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Crane Company and Fastenal Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fastenal and Crane 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 Crane Company 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 Crane i.e., Crane and Fastenal go up and down completely randomly.

Pair Corralation between Crane and Fastenal

Allowing for the 90-day total investment horizon Crane Company is expected to generate 1.19 times more return on investment than Fastenal. However, Crane is 1.19 times more volatile than Fastenal Company. It trades about 0.32 of its potential returns per unit of risk. Fastenal Company is currently generating about 0.22 per unit of risk. If you would invest  15,884  in Crane Company on August 30, 2024 and sell it today you would earn a total of  2,276  from holding Crane Company or generate 14.33% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy100.0%
ValuesDaily Returns

Crane Company  vs.  Fastenal Company

 Performance 
       Timeline  
Crane Company 

Risk-Adjusted Performance

9 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in Crane Company are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Crane reported solid returns over the last few months and may actually be approaching a breakup point.
Fastenal 

Risk-Adjusted Performance

15 of 100

 
Weak
 
Strong
Good
Compared to the overall equity markets, risk-adjusted returns on investments in Fastenal Company are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Fastenal unveiled solid returns over the last few months and may actually be approaching a breakup point.

Crane and Fastenal Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Crane and Fastenal

The main advantage of trading using opposite Crane and Fastenal positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Crane 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 Crane Company 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.
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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..

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