Correlation Between Fast Retailing and Dixons Carphone

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

Diversification Opportunities for Fast Retailing and Dixons Carphone

0.23

Correlation Coefficient

Fast Retailing  Dixons Carphone

Modest diversification

The 3 months correlation between Fast and Dixons is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding Fast Retailing Co and Dixons Carphone plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dixons Carphone 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 Dixons Carphone. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dixons Carphone plc has no effect on the direction of Fast Retailing i.e., Fast Retailing and Dixons Carphone go up and down completely randomly.

Pair Corralation between Fast Retailing and Dixons Carphone

Assuming the 90 days horizon Fast Retailing Co is expected to under-perform the Dixons Carphone. But the pink sheet apears to be less risky and, when comparing its historical volatility, Fast Retailing Co is 1.49 times less risky than Dixons Carphone. The pink sheet trades about -0.07 of its potential returns per unit of risk. The Dixons Carphone plc is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  101.00  in Dixons Carphone plc on October 21, 2024 and sell it today you would earn a total of  17.00  from holding Dixons Carphone plc or generate 16.83% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	93.02%
Values	Daily Returns

Fast Retailing Co  vs.  Dixons Carphone plc

Fast Retailing

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Fast Retailing Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Dixons Carphone plc

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Dixons Carphone plc are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Dixons Carphone is not utilizing all of its potentials. The recent stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Fast Retailing and Dixons Carphone

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

The idea behind Fast Retailing Co and Dixons Carphone 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 Transaction History module to view history of all your transactions and understand their impact on performance.