Correlation Between MSC Industrial and SiteOne Landscape

Can any of the company-specific risk be diversified away by investing in both MSC Industrial and SiteOne Landscape 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 SiteOne Landscape 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 SiteOne Landscape Supply, you can compare the effects of market volatilities on MSC Industrial and SiteOne Landscape 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 SiteOne Landscape. Check out your portfolio center. Please also check ongoing floating volatility patterns of MSC Industrial and SiteOne Landscape.

Diversification Opportunities for MSC Industrial and SiteOne Landscape

0.8

Correlation Coefficient

MSC Industrial  SiteOne Landscape

Very poor diversification

The 3 months correlation between MSC and SiteOne is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding MSC Industrial Direct and SiteOne Landscape Supply in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SiteOne Landscape Supply 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 SiteOne Landscape. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SiteOne Landscape Supply has no effect on the direction of MSC Industrial i.e., MSC Industrial and SiteOne Landscape go up and down completely randomly.

Pair Corralation between MSC Industrial and SiteOne Landscape

Considering the 90-day investment horizon MSC Industrial is expected to generate 1.57 times less return on investment than SiteOne Landscape. But when comparing it to its historical volatility, MSC Industrial Direct is 1.12 times less risky than SiteOne Landscape. It trades about 0.04 of its potential returns per unit of risk. SiteOne Landscape Supply is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  14,186  in SiteOne Landscape Supply on August 30, 2024 and sell it today you would earn a total of  1,106  from holding SiteOne Landscape Supply or generate 7.8% return on investment over 90 days.

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

MSC Industrial Direct  vs.  SiteOne Landscape Supply

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.

SiteOne Landscape Supply

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in SiteOne Landscape Supply are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, SiteOne Landscape may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with MSC Industrial and SiteOne Landscape

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

The idea behind MSC Industrial Direct and SiteOne Landscape Supply 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..