Correlation Between Fast Retailing and Auto Trader

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

Diversification Opportunities for Fast Retailing and Auto Trader

0.07
  Correlation Coefficient

Significant diversification

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

Pair Corralation between Fast Retailing and Auto Trader

Assuming the 90 days trading horizon Fast Retailing Co is expected to generate 1.29 times more return on investment than Auto Trader. However, Fast Retailing is 1.29 times more volatile than Auto Trader Group. It trades about 0.15 of its potential returns per unit of risk. Auto Trader Group is currently generating about -0.01 per unit of risk. If you would invest  27,600  in Fast Retailing Co on September 6, 2024 and sell it today you would earn a total of  5,480  from holding Fast Retailing Co or generate 19.86% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

Fast Retailing Co  vs.  Auto Trader Group

 Performance 
       Timeline  
Fast Retailing 

Risk-Adjusted Performance

12 of 100

 
Weak
 
Strong
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 unsteady basic indicators, Fast Retailing exhibited solid returns over the last few months and may actually be approaching a breakup point.
Auto Trader Group 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
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 current stock price tumult, may contribute to shorter-term losses for the shareholders.

Fast Retailing and Auto Trader Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Fast Retailing and Auto Trader

The main advantage of trading using opposite Fast Retailing and Auto Trader positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Fast Retailing position performs unexpectedly, Auto Trader 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 Auto Trader will offset losses from the drop in Auto Trader's long position.
The idea behind Fast Retailing Co and Auto Trader Group 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.

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