Correlation Between Fast Retailing and Johnson Electric

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

Diversification Opportunities for Fast Retailing and Johnson Electric

0.02

Correlation Coefficient

Fast Retailing  Johnson Electric

Significant diversification

The 3 months correlation between Fast and Johnson is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding Fast Retailing Co and Johnson Electric Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Johnson Electric Holdings 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 Johnson Electric. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Johnson Electric Holdings has no effect on the direction of Fast Retailing i.e., Fast Retailing and Johnson Electric go up and down completely randomly.

Pair Corralation between Fast Retailing and Johnson Electric

Assuming the 90 days trading horizon Fast Retailing Co is expected to under-perform the Johnson Electric. In addition to that, Fast Retailing is 2.07 times more volatile than Johnson Electric Holdings. It trades about -0.26 of its total potential returns per unit of risk. Johnson Electric Holdings is currently generating about -0.23 per unit of volatility. If you would invest  134.00  in Johnson Electric Holdings on October 25, 2024 and sell it today you would lose (6.00) from holding Johnson Electric Holdings or give up 4.48% of portfolio value over 90 days.

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

Fast Retailing Co  vs.  Johnson Electric Holdings

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.

Johnson Electric Holdings

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Johnson Electric Holdings are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile technical indicators, Johnson Electric reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Fast Retailing and Johnson Electric

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

The idea behind Fast Retailing Co and Johnson Electric Holdings 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.