Correlation Between Fast Retailing and WESTERN DIGITAL

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

Diversification Opportunities for Fast Retailing and WESTERN DIGITAL

0.18

Correlation Coefficient

Fast Retailing  WESTERN DIGITAL

Average diversification

The 3 months correlation between Fast and WESTERN is 0.18. Overlapping area represents the amount of risk that can be diversified away by holding Fast Retailing Co and WESTERN DIGITAL in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WESTERN DIGITAL 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 WESTERN DIGITAL. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WESTERN DIGITAL has no effect on the direction of Fast Retailing i.e., Fast Retailing and WESTERN DIGITAL go up and down completely randomly.

Pair Corralation between Fast Retailing and WESTERN DIGITAL

Assuming the 90 days trading horizon Fast Retailing Co is expected to generate 0.58 times more return on investment than WESTERN DIGITAL. However, Fast Retailing Co is 1.72 times less risky than WESTERN DIGITAL. It trades about -0.02 of its potential returns per unit of risk. WESTERN DIGITAL is currently generating about -0.15 per unit of risk. If you would invest  33,590  in Fast Retailing Co on October 6, 2024 and sell it today you would lose (320.00) from holding Fast Retailing Co or give up 0.95% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	94.44%
Values	Daily Returns

Fast Retailing Co  vs.  WESTERN DIGITAL

Fast Retailing

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Fast Retailing Co are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain basic indicators, Fast Retailing may actually be approaching a critical reversion point that can send shares even higher in February 2025.

WESTERN DIGITAL

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in WESTERN DIGITAL are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, WESTERN DIGITAL is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Fast Retailing and WESTERN DIGITAL

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

The idea behind Fast Retailing Co and WESTERN DIGITAL 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.