Correlation Between Fast Retailing and WEBTOON Entertainment

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

Diversification Opportunities for Fast Retailing and WEBTOON Entertainment

0.52

Correlation Coefficient

Fast Retailing  WEBTOON Entertainment

Very weak diversification

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

Pair Corralation between Fast Retailing and WEBTOON Entertainment

Assuming the 90 days horizon Fast Retailing Co is expected to generate 0.52 times more return on investment than WEBTOON Entertainment. However, Fast Retailing Co is 1.91 times less risky than WEBTOON Entertainment. It trades about -0.04 of its potential returns per unit of risk. WEBTOON Entertainment Common is currently generating about -0.22 per unit of risk. If you would invest  33,260  in Fast Retailing Co on December 28, 2024 and sell it today you would lose (1,659) from holding Fast Retailing Co or give up 4.99% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	96.72%
Values	Daily Returns

Fast Retailing Co  vs.  WEBTOON Entertainment Common

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 nearly stable basic indicators, Fast Retailing is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

WEBTOON Entertainment

Risk-Adjusted Performance

Very Weak

Over the last 90 days WEBTOON Entertainment Common has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in April 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Fast Retailing and WEBTOON Entertainment

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

The idea behind Fast Retailing Co and WEBTOON Entertainment Common 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.