Correlation Between Fast Retailing and Arm Holdings

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

Diversification Opportunities for Fast Retailing and Arm Holdings

0.36

Correlation Coefficient

Fast Retailing  Arm Holdings

Weak diversification

The 3 months correlation between Fast and Arm is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding Fast Retailing Co and Arm Holdings plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Arm Holdings plc 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 Arm Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Arm Holdings plc has no effect on the direction of Fast Retailing i.e., Fast Retailing and Arm Holdings go up and down completely randomly.

Pair Corralation between Fast Retailing and Arm Holdings

Assuming the 90 days horizon Fast Retailing Co is expected to generate 2.17 times more return on investment than Arm Holdings. However, Fast Retailing is 2.17 times more volatile than Arm Holdings plc. It trades about 0.05 of its potential returns per unit of risk. Arm Holdings plc is currently generating about 0.07 per unit of risk. If you would invest  19,143  in Fast Retailing Co on September 28, 2024 and sell it today you would earn a total of  14,117  from holding Fast Retailing Co or generate 73.74% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	86.44%
Values	Daily Returns

Fast Retailing Co  vs.  Arm Holdings plc

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. Despite nearly fragile basic indicators, Fast Retailing may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Arm Holdings plc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Arm Holdings plc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest fragile performance, the Stock's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Pair Trading with Fast Retailing and Arm Holdings

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

The idea behind Fast Retailing Co and Arm Holdings plc 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.