Correlation Between Fast Retailing and Imperial Brands

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

Diversification Opportunities for Fast Retailing and Imperial Brands

-0.37

Correlation Coefficient

Fast Retailing  Imperial Brands

Very good diversification

The 3 months correlation between Fast and Imperial is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding Fast Retailing Co and Imperial Brands PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Imperial Brands PLC 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 Imperial Brands. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Imperial Brands PLC has no effect on the direction of Fast Retailing i.e., Fast Retailing and Imperial Brands go up and down completely randomly.

Pair Corralation between Fast Retailing and Imperial Brands

Assuming the 90 days trading horizon Fast Retailing Co is expected to under-perform the Imperial Brands. In addition to that, Fast Retailing is 1.52 times more volatile than Imperial Brands PLC. It trades about -0.13 of its total potential returns per unit of risk. Imperial Brands PLC is currently generating about 0.11 per unit of volatility. If you would invest  3,022  in Imperial Brands PLC on December 29, 2024 and sell it today you would earn a total of  245.00  from holding Imperial Brands PLC or generate 8.11% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.44%
Values	Daily Returns

Fast Retailing Co  vs.  Imperial Brands PLC

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.

Imperial Brands PLC

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Imperial Brands PLC are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Imperial Brands may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Fast Retailing and Imperial Brands

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

The idea behind Fast Retailing Co and Imperial Brands PLC 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.