Correlation Between FAST RETAIL and CHINA SOUTHN

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

Diversification Opportunities for FAST RETAIL and CHINA SOUTHN

0.48

Correlation Coefficient

FAST RETAIL  CHINA SOUTHN

Very weak diversification

The 3 months correlation between FAST and CHINA is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding FAST RETAIL ADR and CHINA SOUTHN AIR H in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CHINA SOUTHN AIR 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 CHINA SOUTHN. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CHINA SOUTHN AIR has no effect on the direction of FAST RETAIL i.e., FAST RETAIL and CHINA SOUTHN go up and down completely randomly.

Pair Corralation between FAST RETAIL and CHINA SOUTHN

Assuming the 90 days trading horizon FAST RETAIL ADR is expected to generate 0.55 times more return on investment than CHINA SOUTHN. However, FAST RETAIL ADR is 1.83 times less risky than CHINA SOUTHN. It trades about -0.07 of its potential returns per unit of risk. CHINA SOUTHN AIR H is currently generating about -0.13 per unit of risk. If you would invest  3,340  in FAST RETAIL ADR on October 8, 2024 and sell it today you would lose (60.00) from holding FAST RETAIL ADR or give up 1.8% of portfolio value over 90 days.

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

FAST RETAIL ADR  vs.  CHINA SOUTHN AIR H

FAST RETAIL ADR

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in FAST RETAIL ADR are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, FAST RETAIL may actually be approaching a critical reversion point that can send shares even higher in February 2025.

CHINA SOUTHN AIR

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in CHINA SOUTHN AIR H are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, CHINA SOUTHN unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with FAST RETAIL and CHINA SOUTHN

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

The idea behind FAST RETAIL ADR and CHINA SOUTHN AIR H 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.

Check out your portfolio center.

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 Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.