Correlation Between Fast Retailing and LOREAL ADR

Can any of the company-specific risk be diversified away by investing in both Fast Retailing and LOREAL ADR 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 LOREAL ADR 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 LOREAL ADR 15EO, you can compare the effects of market volatilities on Fast Retailing and LOREAL ADR 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 LOREAL ADR. Check out your portfolio center. Please also check ongoing floating volatility patterns of Fast Retailing and LOREAL ADR.

Diversification Opportunities for Fast Retailing and LOREAL ADR

-0.33

Correlation Coefficient

Fast Retailing  LOREAL ADR

Very good diversification

The 3 months correlation between Fast and LOREAL is -0.33. Overlapping area represents the amount of risk that can be diversified away by holding Fast Retailing Co and LOREAL ADR 15EO in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LOREAL ADR 15EO 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 LOREAL ADR. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LOREAL ADR 15EO has no effect on the direction of Fast Retailing i.e., Fast Retailing and LOREAL ADR go up and down completely randomly.

Pair Corralation between Fast Retailing and LOREAL ADR

Assuming the 90 days trading horizon Fast Retailing Co is expected to under-perform the LOREAL ADR. But the stock apears to be less risky and, when comparing its historical volatility, Fast Retailing Co is 1.02 times less risky than LOREAL ADR. The stock trades about -0.11 of its potential returns per unit of risk. The LOREAL ADR 15EO is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  6,700  in LOREAL ADR 15EO on December 28, 2024 and sell it today you would earn a total of  0.00  from holding LOREAL ADR 15EO or generate 0.0% return on investment over 90 days.

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

Fast Retailing Co  vs.  LOREAL ADR 15EO

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 latest fragile performance, the Stock's basic indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

LOREAL ADR 15EO

Risk-Adjusted Performance

Very Weak

Over the last 90 days LOREAL ADR 15EO has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, LOREAL ADR 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 LOREAL ADR

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

The idea behind Fast Retailing Co and LOREAL ADR 15EO 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 Commodity Directory module to find actively traded commodities issued by global exchanges.