Correlation Between Fast Retailing and Genuine Parts

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

Diversification Opportunities for Fast Retailing and Genuine Parts

-0.44

Correlation Coefficient

Fast Retailing  Genuine Parts

Very good diversification

The 3 months correlation between Fast and Genuine is -0.44. Overlapping area represents the amount of risk that can be diversified away by holding Fast Retailing Co and Genuine Parts Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Genuine Parts 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 Genuine Parts. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Genuine Parts has no effect on the direction of Fast Retailing i.e., Fast Retailing and Genuine Parts go up and down completely randomly.

Pair Corralation between Fast Retailing and Genuine Parts

Assuming the 90 days horizon Fast Retailing Co is expected to under-perform the Genuine Parts. In addition to that, Fast Retailing is 1.4 times more volatile than Genuine Parts Co. It trades about -0.04 of its total potential returns per unit of risk. Genuine Parts Co is currently generating about 0.06 per unit of volatility. If you would invest  11,523  in Genuine Parts Co on December 21, 2024 and sell it today you would earn a total of  551.00  from holding Genuine Parts Co or generate 4.78% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.31%
Values	Daily Returns

Fast Retailing Co  vs.  Genuine Parts Co

Fast Retailing

Risk-Adjusted Performance

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 nearly stable basic indicators, Fast Retailing is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Genuine Parts

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Genuine Parts Co are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, Genuine Parts is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Fast Retailing and Genuine Parts

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

The idea behind Fast Retailing Co and Genuine Parts Co 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.