Correlation Between FAST RETAIL and Canadian Utilities

Can any of the company-specific risk be diversified away by investing in both FAST RETAIL and Canadian Utilities 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 RETAIL and Canadian Utilities into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between FAST RETAIL ADR and Canadian Utilities Limited, you can compare the effects of market volatilities on FAST RETAIL and Canadian Utilities 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 RETAIL with a short position of Canadian Utilities. Check out your portfolio center. Please also check ongoing floating volatility patterns of FAST RETAIL and Canadian Utilities.

Diversification Opportunities for FAST RETAIL and Canadian Utilities

0.6

Correlation Coefficient

FAST RETAIL  Canadian Utilities

Poor diversification

The 3 months correlation between FAST and Canadian is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding FAST RETAIL ADR and Canadian Utilities Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Canadian Utilities and FAST RETAIL 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 RETAIL ADR are associated (or correlated) with Canadian Utilities. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Canadian Utilities has no effect on the direction of FAST RETAIL i.e., FAST RETAIL and Canadian Utilities go up and down completely randomly.

Pair Corralation between FAST RETAIL and Canadian Utilities

Assuming the 90 days trading horizon FAST RETAIL ADR is expected to generate 1.89 times more return on investment than Canadian Utilities. However, FAST RETAIL is 1.89 times more volatile than Canadian Utilities Limited. It trades about -0.05 of its potential returns per unit of risk. Canadian Utilities Limited is currently generating about -0.16 per unit of risk. If you would invest  3,080  in FAST RETAIL ADR on October 26, 2024 and sell it today you would lose (120.00) from holding FAST RETAIL ADR or give up 3.9% of portfolio value over 90 days.

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

FAST RETAIL ADR  vs.  Canadian Utilities Limited

FAST RETAIL ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days FAST RETAIL ADR has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, FAST RETAIL is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Canadian Utilities

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Canadian Utilities Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Canadian Utilities is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with FAST RETAIL and Canadian Utilities

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

The idea behind FAST RETAIL ADR and Canadian Utilities Limited 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.