Correlation Between Fast Retailing and Ross Stores

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

Diversification Opportunities for Fast Retailing and Ross Stores

0.6

Correlation Coefficient

Fast Retailing  Ross Stores

Poor diversification

The 3 months correlation between Fast and Ross is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Fast Retailing Co and Ross Stores in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ross Stores 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 Ross Stores. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ross Stores has no effect on the direction of Fast Retailing i.e., Fast Retailing and Ross Stores go up and down completely randomly.

Pair Corralation between Fast Retailing and Ross Stores

Assuming the 90 days horizon Fast Retailing Co is expected to under-perform the Ross Stores. In addition to that, Fast Retailing is 1.46 times more volatile than Ross Stores. It trades about -0.39 of its total potential returns per unit of risk. Ross Stores is currently generating about -0.05 per unit of volatility. If you would invest  15,388  in Ross Stores on October 13, 2024 and sell it today you would lose (214.00) from holding Ross Stores or give up 1.39% of portfolio value over 90 days.

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

Fast Retailing Co  vs.  Ross Stores

Fast Retailing

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Fast Retailing Co 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 fairly strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Ross Stores

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Ross Stores are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively conflicting basic indicators, Ross Stores may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Fast Retailing and Ross Stores

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

The idea behind Fast Retailing Co and Ross Stores 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 Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.