Correlation Between Fast Retailing and Olympic Steel

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

Diversification Opportunities for Fast Retailing and Olympic Steel

-0.03

Correlation Coefficient

Fast Retailing  Olympic Steel

Good diversification

The 3 months correlation between Fast and Olympic is -0.03. Overlapping area represents the amount of risk that can be diversified away by holding Fast Retailing Co and Olympic Steel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Olympic Steel 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 Olympic Steel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Olympic Steel has no effect on the direction of Fast Retailing i.e., Fast Retailing and Olympic Steel go up and down completely randomly.

Pair Corralation between Fast Retailing and Olympic Steel

Assuming the 90 days horizon Fast Retailing Co is expected to generate 0.44 times more return on investment than Olympic Steel. However, Fast Retailing Co is 2.3 times less risky than Olympic Steel. It trades about 0.26 of its potential returns per unit of risk. Olympic Steel is currently generating about -0.4 per unit of risk. If you would invest  31,335  in Fast Retailing Co on September 23, 2024 and sell it today you would earn a total of  1,925  from holding Fast Retailing Co or generate 6.14% return on investment over 90 days.

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

Fast Retailing Co  vs.  Olympic Steel

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 fragile basic indicators, Fast Retailing may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Olympic Steel

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Olympic Steel has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with Fast Retailing and Olympic Steel

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

The idea behind Fast Retailing Co and Olympic Steel 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.