Correlation Between ETFS Coffee and FAST RETAIL

Can any of the company-specific risk be diversified away by investing in both ETFS Coffee and FAST RETAIL 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 ETFS Coffee and FAST RETAIL into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between ETFS Coffee ETC and FAST RETAIL ADR, you can compare the effects of market volatilities on ETFS Coffee and FAST RETAIL 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 ETFS Coffee with a short position of FAST RETAIL. Check out your portfolio center. Please also check ongoing floating volatility patterns of ETFS Coffee and FAST RETAIL.

Diversification Opportunities for ETFS Coffee and FAST RETAIL

0.37

Correlation Coefficient

ETFS Coffee  FAST RETAIL

Weak diversification

The 3 months correlation between ETFS and FAST is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding ETFS Coffee ETC and FAST RETAIL ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FAST RETAIL ADR and ETFS Coffee 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 ETFS Coffee ETC are associated (or correlated) with FAST RETAIL. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FAST RETAIL ADR has no effect on the direction of ETFS Coffee i.e., ETFS Coffee and FAST RETAIL go up and down completely randomly.

Pair Corralation between ETFS Coffee and FAST RETAIL

Assuming the 90 days trading horizon ETFS Coffee ETC is expected to generate 1.78 times more return on investment than FAST RETAIL. However, ETFS Coffee is 1.78 times more volatile than FAST RETAIL ADR. It trades about 0.27 of its potential returns per unit of risk. FAST RETAIL ADR is currently generating about 0.14 per unit of risk. If you would invest  3,908  in ETFS Coffee ETC on October 7, 2024 and sell it today you would earn a total of  1,273  from holding ETFS Coffee ETC or generate 32.57% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	92.31%
Values	Daily Returns

ETFS Coffee ETC  vs.  FAST RETAIL ADR

ETFS Coffee ETC

Risk-Adjusted Performance

0 of 100

Solid

Over the last 90 days ETFS Coffee ETC has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly fragile basic indicators, ETFS Coffee reported solid returns over the last few months and may actually be approaching a breakup point.

FAST RETAIL ADR

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in FAST RETAIL ADR are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, FAST RETAIL may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with ETFS Coffee and FAST RETAIL

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

The idea behind ETFS Coffee ETC and FAST RETAIL ADR 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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.