Correlation Between Fast Retailing and RTL Group

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

Diversification Opportunities for Fast Retailing and RTL Group

-0.37

Correlation Coefficient

Fast Retailing  RTL Group

Very good diversification

The 3 months correlation between Fast and RTL is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding Fast Retailing Co and RTL Group SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on RTL Group SA 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 RTL Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of RTL Group SA has no effect on the direction of Fast Retailing i.e., Fast Retailing and RTL Group go up and down completely randomly.

Pair Corralation between Fast Retailing and RTL Group

Assuming the 90 days trading horizon Fast Retailing Co is expected to under-perform the RTL Group. In addition to that, Fast Retailing is 1.17 times more volatile than RTL Group SA. It trades about -0.14 of its total potential returns per unit of risk. RTL Group SA is currently generating about 0.33 per unit of volatility. If you would invest  2,645  in RTL Group SA on December 21, 2024 and sell it today you would earn a total of  880.00  from holding RTL Group SA or generate 33.27% 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.  RTL Group SA

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 unsteady performance in the last few months, the Stock's basic indicators remain rather sound which may send shares a bit higher in April 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

RTL Group SA

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in RTL Group SA are ranked lower than 25 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady essential indicators, RTL Group exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Fast Retailing and RTL Group

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

The idea behind Fast Retailing Co and RTL Group SA 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 Channel module to use Commodity Channel Index to analyze current equity momentum.