Correlation Between Fast Retailing and JAPAN TOBACCO

Can any of the company-specific risk be diversified away by investing in both Fast Retailing and JAPAN TOBACCO 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 JAPAN TOBACCO 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 JAPAN TOBACCO UNSPADR12, you can compare the effects of market volatilities on Fast Retailing and JAPAN TOBACCO 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 JAPAN TOBACCO. Check out your portfolio center. Please also check ongoing floating volatility patterns of Fast Retailing and JAPAN TOBACCO.

Diversification Opportunities for Fast Retailing and JAPAN TOBACCO

0.34

Correlation Coefficient

Fast Retailing  JAPAN TOBACCO

Weak diversification

The 3 months correlation between Fast and JAPAN is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding Fast Retailing Co and JAPAN TOBACCO UNSPADR12 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on JAPAN TOBACCO UNSPADR12 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 JAPAN TOBACCO. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of JAPAN TOBACCO UNSPADR12 has no effect on the direction of Fast Retailing i.e., Fast Retailing and JAPAN TOBACCO go up and down completely randomly.

Pair Corralation between Fast Retailing and JAPAN TOBACCO

Assuming the 90 days trading horizon Fast Retailing Co is expected to generate 1.06 times more return on investment than JAPAN TOBACCO. However, Fast Retailing is 1.06 times more volatile than JAPAN TOBACCO UNSPADR12. It trades about 0.07 of its potential returns per unit of risk. JAPAN TOBACCO UNSPADR12 is currently generating about 0.06 per unit of risk. If you would invest  17,833  in Fast Retailing Co on October 11, 2024 and sell it today you would earn a total of  13,557  from holding Fast Retailing Co or generate 76.02% return on investment over 90 days.

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

Fast Retailing Co  vs.  JAPAN TOBACCO UNSPADR12

Fast Retailing

Risk-Adjusted Performance

0 of 100

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.

JAPAN TOBACCO UNSPADR12

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days JAPAN TOBACCO UNSPADR12 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, JAPAN TOBACCO is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Fast Retailing and JAPAN TOBACCO

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

The idea behind Fast Retailing Co and JAPAN TOBACCO UNSPADR12 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.