Correlation Between FAST RETAIL and Madison Square

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

Diversification Opportunities for FAST RETAIL and Madison Square

0.6

Correlation Coefficient

FAST RETAIL  Madison Square

Poor diversification

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

Pair Corralation between FAST RETAIL and Madison Square

Assuming the 90 days trading horizon FAST RETAIL ADR is expected to generate 1.59 times more return on investment than Madison Square. However, FAST RETAIL is 1.59 times more volatile than Madison Square Garden. It trades about 0.16 of its potential returns per unit of risk. Madison Square Garden is currently generating about 0.21 per unit of risk. If you would invest  2,740  in FAST RETAIL ADR on September 13, 2024 and sell it today you would earn a total of  560.00  from holding FAST RETAIL ADR or generate 20.44% return on investment over 90 days.

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

FAST RETAIL ADR  vs.  Madison Square Garden

FAST RETAIL ADR

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in FAST RETAIL ADR are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, FAST RETAIL reported solid returns over the last few months and may actually be approaching a breakup point.

Madison Square Garden

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Madison Square Garden are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Madison Square reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with FAST RETAIL and Madison Square

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

The idea behind FAST RETAIL ADR and Madison Square Garden 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.