Correlation Between Fast Retailing and Precision Drilling

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

Diversification Opportunities for Fast Retailing and Precision Drilling

0.07

Correlation Coefficient

Fast Retailing  Precision Drilling

Significant diversification

The 3 months correlation between Fast and Precision is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding Fast Retailing Co and Precision Drilling in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Precision Drilling 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 Precision Drilling. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Precision Drilling has no effect on the direction of Fast Retailing i.e., Fast Retailing and Precision Drilling go up and down completely randomly.

Pair Corralation between Fast Retailing and Precision Drilling

Assuming the 90 days horizon Fast Retailing Co is expected to generate 1.17 times more return on investment than Precision Drilling. However, Fast Retailing is 1.17 times more volatile than Precision Drilling. It trades about -0.07 of its potential returns per unit of risk. Precision Drilling is currently generating about -0.29 per unit of risk. If you would invest  33,260  in Fast Retailing Co on December 2, 2024 and sell it today you would lose (2,273) from holding Fast Retailing Co or give up 6.83% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	95.0%
Values	Daily Returns

Fast Retailing Co  vs.  Precision Drilling

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 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.

Precision Drilling

Risk-Adjusted Performance

Very Weak

Over the last 90 days Precision Drilling has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's fundamental indicators remain comparatively stable which may send shares a bit higher in April 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Fast Retailing and Precision Drilling

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

The idea behind Fast Retailing Co and Precision Drilling 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.