Correlation Between Fast Retailing and REYNOLDS

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

Diversification Opportunities for Fast Retailing and REYNOLDS

0.1

Correlation Coefficient

Fast Retailing  REYNOLDS

Average diversification

The 3 months correlation between Fast and REYNOLDS is 0.1. Overlapping area represents the amount of risk that can be diversified away by holding Fast Retailing Co and REYNOLDS AMERN INC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on REYNOLDS AMERN INC 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 REYNOLDS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of REYNOLDS AMERN INC has no effect on the direction of Fast Retailing i.e., Fast Retailing and REYNOLDS go up and down completely randomly.

Pair Corralation between Fast Retailing and REYNOLDS

Assuming the 90 days horizon Fast Retailing Co is expected to generate 11.06 times more return on investment than REYNOLDS. However, Fast Retailing is 11.06 times more volatile than REYNOLDS AMERN INC. It trades about 0.07 of its potential returns per unit of risk. REYNOLDS AMERN INC is currently generating about -0.08 per unit of risk. If you would invest  30,332  in Fast Retailing Co on September 4, 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 Together
Strength	Insignificant
Accuracy	96.88%
Values	Daily Returns

Fast Retailing Co  vs.  REYNOLDS AMERN INC

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.

REYNOLDS AMERN INC

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Fast Retailing and REYNOLDS

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

The idea behind Fast Retailing Co and REYNOLDS AMERN INC 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.