Correlation Between Fast Retailing and SEB SA

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

Diversification Opportunities for Fast Retailing and SEB SA

0.47

Correlation Coefficient

Fast Retailing  SEB SA

Very weak diversification

The 3 months correlation between Fast and SEB is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding Fast Retailing Co and SEB SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SEB SA 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 SEB SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SEB SA has no effect on the direction of Fast Retailing i.e., Fast Retailing and SEB SA go up and down completely randomly.

Pair Corralation between Fast Retailing and SEB SA

Assuming the 90 days horizon Fast Retailing Co is expected to generate 0.81 times more return on investment than SEB SA. However, Fast Retailing Co is 1.23 times less risky than SEB SA. It trades about 0.07 of its potential returns per unit of risk. SEB SA is currently generating about 0.02 per unit of risk. If you would invest  23,901  in Fast Retailing Co on September 12, 2024 and sell it today you would earn a total of  9,689  from holding Fast Retailing Co or generate 40.54% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	62.23%
Values	Daily Returns

Fast Retailing Co  vs.  SEB SA

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.

SEB SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SEB SA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, SEB SA is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Fast Retailing and SEB SA

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

The idea behind Fast Retailing Co and SEB SA 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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.