Correlation Between Fast Retailing and Lifeway Foods

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

Diversification Opportunities for Fast Retailing and Lifeway Foods

-0.04

Correlation Coefficient

Fast Retailing  Lifeway Foods

Good diversification

The 3 months correlation between Fast and Lifeway is -0.04. Overlapping area represents the amount of risk that can be diversified away by holding Fast Retailing Co and Lifeway Foods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lifeway Foods 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 Lifeway Foods. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lifeway Foods has no effect on the direction of Fast Retailing i.e., Fast Retailing and Lifeway Foods go up and down completely randomly.

Pair Corralation between Fast Retailing and Lifeway Foods

Assuming the 90 days trading horizon Fast Retailing Co is expected to under-perform the Lifeway Foods. But the stock apears to be less risky and, when comparing its historical volatility, Fast Retailing Co is 1.69 times less risky than Lifeway Foods. The stock trades about -0.08 of its potential returns per unit of risk. The Lifeway Foods is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  2,420  in Lifeway Foods on October 12, 2024 and sell it today you would lose (200.00) from holding Lifeway Foods or give up 8.26% of portfolio value over 90 days.

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

Fast Retailing Co  vs.  Lifeway Foods

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 latest uncertain 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.

Lifeway Foods

Risk-Adjusted Performance

0 of 100

Very Weak

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

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

The idea behind Fast Retailing Co and Lifeway Foods 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.