Correlation Between Fast Retailing and Ross Stores

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

Diversification Opportunities for Fast Retailing and Ross Stores

-0.3

Correlation Coefficient

Fast Retailing  Ross Stores

Very good diversification

The 3 months correlation between Fast and Ross is -0.3. Overlapping area represents the amount of risk that can be diversified away by holding Fast Retailing Co and Ross Stores in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ross Stores 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 Ross Stores. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ross Stores has no effect on the direction of Fast Retailing i.e., Fast Retailing and Ross Stores go up and down completely randomly.

Pair Corralation between Fast Retailing and Ross Stores

Assuming the 90 days horizon Fast Retailing Co is expected to generate 8.46 times more return on investment than Ross Stores. However, Fast Retailing is 8.46 times more volatile than Ross Stores. It trades about 0.05 of its potential returns per unit of risk. Ross Stores is currently generating about 0.05 per unit of risk. If you would invest  19,143  in Fast Retailing Co on September 25, 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	Insignificant
Accuracy	75.86%
Values	Daily Returns

Fast Retailing Co  vs.  Ross Stores

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 may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Ross Stores

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Ross Stores has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Ross Stores is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Fast Retailing and Ross Stores

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

The idea behind Fast Retailing Co and Ross Stores 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.