Correlation Between Fast Retailing and AMERICAN

Can any of the company-specific risk be diversified away by investing in both Fast Retailing and AMERICAN 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 AMERICAN 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 AMERICAN EXPRESS 42, you can compare the effects of market volatilities on Fast Retailing and AMERICAN 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 AMERICAN. Check out your portfolio center. Please also check ongoing floating volatility patterns of Fast Retailing and AMERICAN.

Diversification Opportunities for Fast Retailing and AMERICAN

0.17

Correlation Coefficient

Fast Retailing  AMERICAN

Average diversification

The 3 months correlation between Fast and AMERICAN is 0.17. Overlapping area represents the amount of risk that can be diversified away by holding Fast Retailing Co and AMERICAN EXPRESS 42 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AMERICAN EXPRESS 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 AMERICAN. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AMERICAN EXPRESS has no effect on the direction of Fast Retailing i.e., Fast Retailing and AMERICAN go up and down completely randomly.

Pair Corralation between Fast Retailing and AMERICAN

Assuming the 90 days horizon Fast Retailing Co is expected to under-perform the AMERICAN. In addition to that, Fast Retailing is 6.47 times more volatile than AMERICAN EXPRESS 42. It trades about -0.07 of its total potential returns per unit of risk. AMERICAN EXPRESS 42 is currently generating about -0.07 per unit of volatility. If you would invest  9,986  in AMERICAN EXPRESS 42 on December 3, 2024 and sell it today you would lose (112.00) from holding AMERICAN EXPRESS 42 or give up 1.12% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	90.48%
Values	Daily Returns

Fast Retailing Co  vs.  AMERICAN EXPRESS 42

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.

AMERICAN EXPRESS

Risk-Adjusted Performance

Very Weak

Over the last 90 days AMERICAN EXPRESS 42 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, AMERICAN is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Fast Retailing and AMERICAN

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

The idea behind Fast Retailing Co and AMERICAN EXPRESS 42 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..