Correlation Between Fast Retailing and Focus Home

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

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

Diversification Opportunities for Fast Retailing and Focus Home

0.09

Correlation Coefficient

Fast Retailing  Focus Home

Significant diversification

The 3 months correlation between Fast and Focus is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding Fast Retailing Co and Focus Home Interactive in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Focus Home Interactive and Fast Retailing 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 Fast Retailing Co are associated (or correlated) with Focus Home. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Focus Home Interactive has no effect on the direction of Fast Retailing i.e., Fast Retailing and Focus Home go up and down completely randomly.

Pair Corralation between Fast Retailing and Focus Home

Assuming the 90 days trading horizon Fast Retailing is expected to generate 4.92 times less return on investment than Focus Home. But when comparing it to its historical volatility, Fast Retailing Co is 2.2 times less risky than Focus Home. It trades about 0.04 of its potential returns per unit of risk. Focus Home Interactive is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  2,005  in Focus Home Interactive on October 5, 2024 and sell it today you would earn a total of  105.00  from holding Focus Home Interactive or generate 5.24% return on investment over 90 days.

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

Fast Retailing Co  vs.  Focus Home Interactive

Fast Retailing

Risk-Adjusted Performance

0 of 100

OK

Over the last 90 days Fast Retailing Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather uncertain basic indicators, Fast Retailing may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Focus Home Interactive

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days Focus Home Interactive has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Focus Home is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Fast Retailing and Focus Home

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

The idea behind Fast Retailing Co and Focus Home Interactive 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.