Correlation Between Fast Retailing and Weibo Corp

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

Diversification Opportunities for Fast Retailing and Weibo Corp

0.52

Correlation Coefficient

Fast Retailing  Weibo Corp

Very weak diversification

The 3 months correlation between Fast and Weibo is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding Fast Retailing Co and Weibo Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Weibo Corp 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 Weibo Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Weibo Corp has no effect on the direction of Fast Retailing i.e., Fast Retailing and Weibo Corp go up and down completely randomly.

Pair Corralation between Fast Retailing and Weibo Corp

Assuming the 90 days horizon Fast Retailing is expected to generate 1.67 times less return on investment than Weibo Corp. But when comparing it to its historical volatility, Fast Retailing Co is 2.56 times less risky than Weibo Corp. It trades about 0.26 of its potential returns per unit of risk. Weibo Corp is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  897.00  in Weibo Corp on September 22, 2024 and sell it today you would earn a total of  88.00  from holding Weibo Corp or generate 9.81% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

Fast Retailing Co  vs.  Weibo Corp

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.

Weibo Corp

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Weibo Corp are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak fundamental drivers, Weibo Corp sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Fast Retailing and Weibo Corp

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

The idea behind Fast Retailing Co and Weibo Corp 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.