Correlation Between Fast Retailing and ScanSource

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

Diversification Opportunities for Fast Retailing and ScanSource

0.65

Correlation Coefficient

Fast Retailing  ScanSource

Poor diversification

The 3 months correlation between Fast and ScanSource is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Fast Retailing Co and ScanSource in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ScanSource 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 ScanSource. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ScanSource has no effect on the direction of Fast Retailing i.e., Fast Retailing and ScanSource go up and down completely randomly.

Pair Corralation between Fast Retailing and ScanSource

Assuming the 90 days trading horizon Fast Retailing Co is expected to generate 0.7 times more return on investment than ScanSource. However, Fast Retailing Co is 1.42 times less risky than ScanSource. It trades about -0.13 of its potential returns per unit of risk. ScanSource is currently generating about -0.19 per unit of risk. If you would invest  32,214  in Fast Retailing Co on December 29, 2024 and sell it today you would lose (4,444) from holding Fast Retailing Co or give up 13.8% of portfolio value over 90 days.

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

Fast Retailing Co  vs.  ScanSource

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 fragile 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.

ScanSource

Risk-Adjusted Performance

Very Weak

Over the last 90 days ScanSource 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 April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Fast Retailing and ScanSource

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

The idea behind Fast Retailing Co and ScanSource 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.