Correlation Between Fast Retailing and Addus HomeCare

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

Diversification Opportunities for Fast Retailing and Addus HomeCare

0.08

Correlation Coefficient

Fast Retailing  Addus HomeCare

Significant diversification

The 3 months correlation between Fast and Addus is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding Fast Retailing Co and Addus HomeCare in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Addus HomeCare 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 Addus HomeCare. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Addus HomeCare has no effect on the direction of Fast Retailing i.e., Fast Retailing and Addus HomeCare go up and down completely randomly.

Pair Corralation between Fast Retailing and Addus HomeCare

Assuming the 90 days trading horizon Fast Retailing Co is expected to generate 0.84 times more return on investment than Addus HomeCare. However, Fast Retailing Co is 1.19 times less risky than Addus HomeCare. It trades about 0.13 of its potential returns per unit of risk. Addus HomeCare is currently generating about 0.05 per unit of risk. If you would invest  23,600  in Fast Retailing Co on September 23, 2024 and sell it today you would earn a total of  8,540  from holding Fast Retailing Co or generate 36.19% 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.  Addus HomeCare

Fast Retailing

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Fast Retailing Co are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain basic indicators, Fast Retailing may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Addus HomeCare

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Addus HomeCare are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Addus HomeCare may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Fast Retailing and Addus HomeCare

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

The idea behind Fast Retailing Co and Addus HomeCare 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.