Correlation Between Fast Retailing and China Reinsurance

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

Diversification Opportunities for Fast Retailing and China Reinsurance

-0.07

Correlation Coefficient

Fast Retailing  China Reinsurance

Good diversification

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

Pair Corralation between Fast Retailing and China Reinsurance

Assuming the 90 days trading horizon Fast Retailing Co is expected to generate 0.44 times more return on investment than China Reinsurance. However, Fast Retailing Co is 2.26 times less risky than China Reinsurance. It trades about -0.01 of its potential returns per unit of risk. China Reinsurance Corp is currently generating about -0.02 per unit of risk. If you would invest  30,340  in Fast Retailing Co on October 23, 2024 and sell it today you would lose (580.00) from holding Fast Retailing Co or give up 1.91% of portfolio value over 90 days.

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

Fast Retailing Co  vs.  China Reinsurance Corp

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

China Reinsurance Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days China Reinsurance Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, China Reinsurance is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Fast Retailing and China Reinsurance

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

The idea behind Fast Retailing Co and China Reinsurance 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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.