Correlation Between Fast Retailing and COVIVIO HOTELS

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

Diversification Opportunities for Fast Retailing and COVIVIO HOTELS

0.11

Correlation Coefficient

Fast Retailing  COVIVIO HOTELS

Average diversification

The 3 months correlation between Fast and COVIVIO is 0.11. Overlapping area represents the amount of risk that can be diversified away by holding Fast Retailing Co and COVIVIO HOTELS INH in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on COVIVIO HOTELS INH 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 COVIVIO HOTELS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of COVIVIO HOTELS INH has no effect on the direction of Fast Retailing i.e., Fast Retailing and COVIVIO HOTELS go up and down completely randomly.

Pair Corralation between Fast Retailing and COVIVIO HOTELS

Assuming the 90 days trading horizon Fast Retailing Co is expected to generate 1.18 times more return on investment than COVIVIO HOTELS. However, Fast Retailing is 1.18 times more volatile than COVIVIO HOTELS INH. It trades about 0.07 of its potential returns per unit of risk. COVIVIO HOTELS INH is currently generating about 0.07 per unit of risk. If you would invest  17,833  in Fast Retailing Co on October 11, 2024 and sell it today you would earn a total of  13,557  from holding Fast Retailing Co or generate 76.02% 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.  COVIVIO HOTELS INH

Fast Retailing

Risk-Adjusted Performance

0 of 100

Very Weak

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 sound basic indicators, Fast Retailing is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

COVIVIO HOTELS INH

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in COVIVIO HOTELS INH are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, COVIVIO HOTELS reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Fast Retailing and COVIVIO HOTELS

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

The idea behind Fast Retailing Co and COVIVIO HOTELS INH 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.