Correlation Between Fast Retailing and ALERION CLEANPOWER

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

Diversification Opportunities for Fast Retailing and ALERION CLEANPOWER

0.64

Correlation Coefficient

Fast Retailing  ALERION CLEANPOWER

Poor diversification

The 3 months correlation between Fast and ALERION is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Fast Retailing Co and ALERION CLEANPOWER in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ALERION CLEANPOWER 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 ALERION CLEANPOWER. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ALERION CLEANPOWER has no effect on the direction of Fast Retailing i.e., Fast Retailing and ALERION CLEANPOWER go up and down completely randomly.

Pair Corralation between Fast Retailing and ALERION CLEANPOWER

Assuming the 90 days trading horizon Fast Retailing Co is expected to generate 0.8 times more return on investment than ALERION CLEANPOWER. However, Fast Retailing Co is 1.25 times less risky than ALERION CLEANPOWER. It trades about 0.09 of its potential returns per unit of risk. ALERION CLEANPOWER is currently generating about 0.0 per unit of risk. If you would invest  24,520  in Fast Retailing Co on October 26, 2024 and sell it today you would earn a total of  5,570  from holding Fast Retailing Co or generate 22.72% return on investment over 90 days.

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

Fast Retailing Co  vs.  ALERION CLEANPOWER

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.

ALERION CLEANPOWER

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days ALERION CLEANPOWER has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, ALERION CLEANPOWER is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Fast Retailing and ALERION CLEANPOWER

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

The idea behind Fast Retailing Co and ALERION CLEANPOWER 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.