Correlation Between Auto Trader and Fast Retailing

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

By analyzing existing cross correlation between Auto Trader Group and Fast Retailing Co, you can compare the effects of market volatilities on Auto Trader and Fast Retailing 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 Auto Trader with a short position of Fast Retailing. Check out your portfolio center. Please also check ongoing floating volatility patterns of Auto Trader and Fast Retailing.

Diversification Opportunities for Auto Trader and Fast Retailing

0.07

Correlation Coefficient

Auto Trader  Fast Retailing

Significant diversification

The 3 months correlation between Auto and Fast is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding Auto Trader Group and Fast Retailing Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fast Retailing and Auto Trader 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 Auto Trader Group are associated (or correlated) with Fast Retailing. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fast Retailing has no effect on the direction of Auto Trader i.e., Auto Trader and Fast Retailing go up and down completely randomly.

Pair Corralation between Auto Trader and Fast Retailing

Assuming the 90 days trading horizon Auto Trader is expected to generate 1.19 times less return on investment than Fast Retailing. But when comparing it to its historical volatility, Auto Trader Group is 1.1 times less risky than Fast Retailing. It trades about 0.07 of its potential returns per unit of risk. Fast Retailing Co is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  18,500  in Fast Retailing Co on September 6, 2024 and sell it today you would earn a total of  15,090  from holding Fast Retailing Co or generate 81.57% return on investment over 90 days.

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

Auto Trader Group  vs.  Fast Retailing Co

Auto Trader Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Auto Trader Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Auto Trader is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Fast Retailing

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Fast Retailing Co are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain basic indicators, Fast Retailing exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Auto Trader and Fast Retailing

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

The idea behind Auto Trader Group and Fast Retailing Co 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.