Correlation Between Prestige Consumer and Fast Retailing

Can any of the company-specific risk be diversified away by investing in both Prestige Consumer and Fast Retailing 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 Prestige Consumer and Fast Retailing into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Prestige Consumer Healthcare and Fast Retailing Co, you can compare the effects of market volatilities on Prestige Consumer and Fast Retailing 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 Prestige Consumer with a short position of Fast Retailing. Check out your portfolio center. Please also check ongoing floating volatility patterns of Prestige Consumer and Fast Retailing.

Diversification Opportunities for Prestige Consumer and Fast Retailing

0.26

Correlation Coefficient

Prestige Consumer  Fast Retailing

Modest diversification

The 3 months correlation between Prestige and Fast is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding Prestige Consumer Healthcare and Fast Retailing Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fast Retailing and Prestige Consumer 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 Prestige Consumer Healthcare are associated (or correlated) with Fast Retailing. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fast Retailing has no effect on the direction of Prestige Consumer i.e., Prestige Consumer and Fast Retailing go up and down completely randomly.

Pair Corralation between Prestige Consumer and Fast Retailing

Assuming the 90 days horizon Prestige Consumer is expected to generate 2.6 times less return on investment than Fast Retailing. But when comparing it to its historical volatility, Prestige Consumer Healthcare is 1.13 times less risky than Fast Retailing. It trades about 0.03 of its potential returns per unit of risk. Fast Retailing Co is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  18,167  in Fast Retailing Co on October 12, 2024 and sell it today you would earn a total of  11,543  from holding Fast Retailing Co or generate 63.54% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	99.8%
Values	Daily Returns

Prestige Consumer Healthcare  vs.  Fast Retailing Co

Prestige Consumer

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Prestige Consumer Healthcare are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Prestige Consumer reported solid returns over the last few months and may actually be approaching a breakup point.

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 latest uncertain performance, the Stock's basic indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with Prestige Consumer and Fast Retailing

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

The idea behind Prestige Consumer Healthcare and Fast Retailing Co 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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.