Correlation Between Fast Retailing and Tesla

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

Diversification Opportunities for Fast Retailing and Tesla

0.21

Correlation Coefficient

Fast Retailing  Tesla

Modest diversification

The 3 months correlation between Fast and Tesla is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding Fast Retailing Co and Tesla Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tesla Inc 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 Tesla. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tesla Inc has no effect on the direction of Fast Retailing i.e., Fast Retailing and Tesla go up and down completely randomly.

Pair Corralation between Fast Retailing and Tesla

Assuming the 90 days trading horizon Fast Retailing is expected to generate 6.91 times less return on investment than Tesla. But when comparing it to its historical volatility, Fast Retailing Co is 2.84 times less risky than Tesla. It trades about 0.16 of its potential returns per unit of risk. Tesla Inc is currently generating about 0.38 of returns per unit of risk over similar time horizon. If you would invest  22,325  in Tesla Inc on September 4, 2024 and sell it today you would earn a total of  10,250  from holding Tesla Inc or generate 45.91% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	95.45%
Values	Daily Returns

Fast Retailing Co  vs.  Tesla Inc

Fast Retailing

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Fast Retailing Co are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, Fast Retailing may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Tesla Inc

Risk-Adjusted Performance

15 of 100

Good

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

Pair Trading with Fast Retailing and Tesla

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

The idea behind Fast Retailing Co and Tesla Inc 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.