Correlation Between Fast Retailing and Longfor Group

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

Diversification Opportunities for Fast Retailing and Longfor Group

-0.41

Correlation Coefficient

Fast Retailing  Longfor Group

Very good diversification

The 3 months correlation between Fast and Longfor is -0.41. Overlapping area represents the amount of risk that can be diversified away by holding Fast Retailing Co and Longfor Group Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Longfor Group 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 Longfor Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Longfor Group Holdings has no effect on the direction of Fast Retailing i.e., Fast Retailing and Longfor Group go up and down completely randomly.

Pair Corralation between Fast Retailing and Longfor Group

Assuming the 90 days trading horizon Fast Retailing Co is expected to generate 0.76 times more return on investment than Longfor Group. However, Fast Retailing Co is 1.32 times less risky than Longfor Group. It trades about -0.17 of its potential returns per unit of risk. Longfor Group Holdings is currently generating about -0.35 per unit of risk. If you would invest  33,580  in Fast Retailing Co on October 10, 2024 and sell it today you would lose (2,080) from holding Fast Retailing Co or give up 6.19% of portfolio value over 90 days.

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

Fast Retailing Co  vs.  Longfor Group Holdings

Fast Retailing

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Fast Retailing Co are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, Fast Retailing is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Longfor Group Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Longfor Group Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Fast Retailing and Longfor Group

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

The idea behind Fast Retailing Co and Longfor Group 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.