Correlation Between Fast Retailing and Choice Hotels

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

Diversification Opportunities for Fast Retailing and Choice Hotels

0.27

Correlation Coefficient

Fast Retailing  Choice Hotels

Modest diversification

The 3 months correlation between Fast and Choice is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding Fast Retailing Co and Choice Hotels International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Choice Hotels Intern 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 Choice Hotels. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Choice Hotels Intern has no effect on the direction of Fast Retailing i.e., Fast Retailing and Choice Hotels go up and down completely randomly.

Pair Corralation between Fast Retailing and Choice Hotels

Assuming the 90 days trading horizon Fast Retailing Co is expected to under-perform the Choice Hotels. In addition to that, Fast Retailing is 1.01 times more volatile than Choice Hotels International. It trades about -0.14 of its total potential returns per unit of risk. Choice Hotels International is currently generating about -0.12 per unit of volatility. If you would invest  13,371  in Choice Hotels International on December 20, 2024 and sell it today you would lose (1,671) from holding Choice Hotels International or give up 12.5% of portfolio value over 90 days.

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

Fast Retailing Co  vs.  Choice Hotels International

Fast Retailing

Risk-Adjusted Performance

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 fragile performance in the last few months, the Stock's basic indicators remain rather sound which may send shares a bit higher in April 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Choice Hotels Intern

Risk-Adjusted Performance

Very Weak

Over the last 90 days Choice Hotels International has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unfluctuating performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Fast Retailing and Choice Hotels

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

The idea behind Fast Retailing Co and Choice Hotels International 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.