Correlation Between Fast Retailing and FLOW TRADERS

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

Diversification Opportunities for Fast Retailing and FLOW TRADERS

0.62

Correlation Coefficient

Fast Retailing  FLOW TRADERS

Poor diversification

The 3 months correlation between Fast and FLOW is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Fast Retailing Co and FLOW TRADERS LTD in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FLOW TRADERS LTD 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 FLOW TRADERS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FLOW TRADERS LTD has no effect on the direction of Fast Retailing i.e., Fast Retailing and FLOW TRADERS go up and down completely randomly.

Pair Corralation between Fast Retailing and FLOW TRADERS

Assuming the 90 days trading horizon Fast Retailing Co is expected to generate 0.87 times more return on investment than FLOW TRADERS. However, Fast Retailing Co is 1.14 times less risky than FLOW TRADERS. It trades about 0.08 of its potential returns per unit of risk. FLOW TRADERS LTD is currently generating about 0.02 per unit of risk. If you would invest  18,667  in Fast Retailing Co on September 11, 2024 and sell it today you would earn a total of  14,913  from holding Fast Retailing Co or generate 79.89% return on investment over 90 days.

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

Fast Retailing Co  vs.  FLOW TRADERS LTD

Fast Retailing

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Fast Retailing Co are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain basic indicators, Fast Retailing exhibited solid returns over the last few months and may actually be approaching a breakup point.

FLOW TRADERS LTD

Risk-Adjusted Performance

15 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in FLOW TRADERS LTD are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, FLOW TRADERS reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Fast Retailing and FLOW TRADERS

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

The idea behind Fast Retailing Co and FLOW TRADERS LTD 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.