Correlation Between Fast Retailing and Childrens Place

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

Diversification Opportunities for Fast Retailing and Childrens Place

-0.49

Correlation Coefficient

Fast Retailing  Childrens Place

Very good diversification

The 3 months correlation between Fast and Childrens is -0.49. Overlapping area represents the amount of risk that can be diversified away by holding Fast Retailing Co and Childrens Place in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Childrens Place 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 Childrens Place. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Childrens Place has no effect on the direction of Fast Retailing i.e., Fast Retailing and Childrens Place go up and down completely randomly.

Pair Corralation between Fast Retailing and Childrens Place

Assuming the 90 days horizon Fast Retailing Co is expected to generate 1.3 times more return on investment than Childrens Place. However, Fast Retailing is 1.3 times more volatile than Childrens Place. It trades about 0.05 of its potential returns per unit of risk. Childrens Place is currently generating about 0.01 per unit of risk. If you would invest  19,143  in Fast Retailing Co on September 26, 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 Against
Strength	Very Weak
Accuracy	76.01%
Values	Daily Returns

Fast Retailing Co  vs.  Childrens Place

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.

Childrens Place

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Childrens Place has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's fundamental indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Fast Retailing and Childrens Place

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

The idea behind Fast Retailing Co and Childrens Place 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.