Correlation Between Prestige Consumer and FAST RETAIL

Can any of the company-specific risk be diversified away by investing in both Prestige Consumer 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 Prestige Consumer and FAST RETAIL 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 RETAIL ADR, you can compare the effects of market volatilities on Prestige Consumer 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 Prestige Consumer with a short position of FAST RETAIL. Check out your portfolio center. Please also check ongoing floating volatility patterns of Prestige Consumer and FAST RETAIL.

Diversification Opportunities for Prestige Consumer and FAST RETAIL

0.34

Correlation Coefficient

Prestige Consumer  FAST RETAIL

Weak diversification

The 3 months correlation between Prestige and FAST is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding Prestige Consumer Healthcare 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 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 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 Prestige Consumer i.e., Prestige Consumer and FAST RETAIL go up and down completely randomly.

Pair Corralation between Prestige Consumer and FAST RETAIL

Assuming the 90 days horizon Prestige Consumer is expected to generate 2.27 times less return on investment than FAST RETAIL. But when comparing it to its historical volatility, Prestige Consumer Healthcare is 1.29 times less risky than FAST RETAIL. It trades about 0.04 of its potential returns per unit of risk. FAST RETAIL ADR is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  1,814  in FAST RETAIL ADR on September 24, 2024 and sell it today you would earn a total of  1,366  from holding FAST RETAIL ADR or generate 75.3% return on investment over 90 days.

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

Prestige Consumer Healthcare  vs.  FAST RETAIL ADR

Prestige Consumer

Risk-Adjusted Performance

12 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Prestige Consumer Healthcare are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Prestige Consumer reported solid returns over the last few months and may actually be approaching a breakup point.

FAST RETAIL ADR

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in FAST RETAIL ADR are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, FAST RETAIL may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Prestige Consumer and FAST RETAIL

The main advantage of trading using opposite Prestige Consumer and FAST RETAIL positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Prestige Consumer 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 Prestige Consumer Healthcare 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.

Check out your portfolio center.

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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.