Correlation Between Fast Retailing and Insteel Industries

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

Diversification Opportunities for Fast Retailing and Insteel Industries

-0.25

Correlation Coefficient

Fast Retailing  Insteel Industries

Very good diversification

The 3 months correlation between Fast and Insteel is -0.25. Overlapping area represents the amount of risk that can be diversified away by holding Fast Retailing Co and Insteel Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Insteel Industries 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 Insteel Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Insteel Industries has no effect on the direction of Fast Retailing i.e., Fast Retailing and Insteel Industries go up and down completely randomly.

Pair Corralation between Fast Retailing and Insteel Industries

Assuming the 90 days horizon Fast Retailing Co is expected to generate 1.12 times more return on investment than Insteel Industries. However, Fast Retailing is 1.12 times more volatile than Insteel Industries. It trades about 0.07 of its potential returns per unit of risk. Insteel Industries is currently generating about -0.03 per unit of risk. If you would invest  24,795  in Fast Retailing Co on October 3, 2024 and sell it today you would earn a total of  8,465  from holding Fast Retailing Co or generate 34.14% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	85.39%
Values	Daily Returns

Fast Retailing Co  vs.  Insteel Industries

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

Insteel Industries

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Insteel Industries has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Stock's forward 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 Insteel Industries

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

The idea behind Fast Retailing Co and Insteel Industries 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.