Correlation Between Fast Retailing and Transocean

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

Diversification Opportunities for Fast Retailing and Transocean

-0.13

Correlation Coefficient

Fast Retailing  Transocean

Good diversification

The 3 months correlation between Fast and Transocean is -0.13. Overlapping area represents the amount of risk that can be diversified away by holding Fast Retailing Co and Transocean in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Transocean 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 Transocean. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Transocean has no effect on the direction of Fast Retailing i.e., Fast Retailing and Transocean go up and down completely randomly.

Pair Corralation between Fast Retailing and Transocean

Assuming the 90 days horizon Fast Retailing Co is expected to generate 0.97 times more return on investment than Transocean. However, Fast Retailing Co is 1.04 times less risky than Transocean. It trades about 0.07 of its potential returns per unit of risk. Transocean is currently generating about -0.01 per unit of risk. If you would invest  30,332  in Fast Retailing Co on September 12, 2024 and sell it today you would earn a total of  3,258  from holding Fast Retailing Co or generate 10.74% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.44%
Values	Daily Returns

Fast Retailing Co  vs.  Transocean

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 weak basic indicators, Fast Retailing reported solid returns over the last few months and may actually be approaching a breakup point.

Transocean

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Transocean has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable forward indicators, Transocean 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 Transocean

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

The idea behind Fast Retailing Co and Transocean 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.

Check out your portfolio center.

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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.