Correlation Between Fast Retailing and Alcoa Corp

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

Diversification Opportunities for Fast Retailing and Alcoa Corp

0.21

Correlation Coefficient

Fast Retailing  Alcoa Corp

Modest diversification

The 3 months correlation between Fast and Alcoa is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding Fast Retailing Co and Alcoa Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alcoa Corp 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 Alcoa Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alcoa Corp has no effect on the direction of Fast Retailing i.e., Fast Retailing and Alcoa Corp go up and down completely randomly.

Pair Corralation between Fast Retailing and Alcoa Corp

Assuming the 90 days trading horizon Fast Retailing Co is expected to generate 0.54 times more return on investment than Alcoa Corp. However, Fast Retailing Co is 1.86 times less risky than Alcoa Corp. It trades about 0.07 of its potential returns per unit of risk. Alcoa Corp is currently generating about 0.0 per unit of risk. If you would invest  19,333  in Fast Retailing Co on September 29, 2024 and sell it today you would earn a total of  13,647  from holding Fast Retailing Co or generate 70.59% return on investment over 90 days.

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

Fast Retailing Co  vs.  Alcoa Corp

Fast Retailing

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Fast Retailing Co are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile basic indicators, Fast Retailing may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Alcoa Corp

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Alcoa Corp are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, Alcoa Corp may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Fast Retailing and Alcoa Corp

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

The idea behind Fast Retailing Co and Alcoa Corp 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.