Correlation Between PHX Energy and Fast Retailing

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

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

Diversification Opportunities for PHX Energy and Fast Retailing

0.3

Correlation Coefficient

PHX Energy  Fast Retailing

Weak diversification

The 3 months correlation between PHX and Fast is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding PHX Energy Services and Fast Retailing Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fast Retailing and PHX Energy 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 PHX Energy Services 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 PHX Energy i.e., PHX Energy and Fast Retailing go up and down completely randomly.

Pair Corralation between PHX Energy and Fast Retailing

Assuming the 90 days horizon PHX Energy is expected to generate 3.04 times less return on investment than Fast Retailing. But when comparing it to its historical volatility, PHX Energy Services is 2.07 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 0.05 of returns per unit of risk over similar time horizon. If you would invest  19,143  in Fast Retailing Co on September 24, 2024 and sell it today you would earn a total of  14,117  from holding Fast Retailing Co or generate 73.74% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	83.81%
Values	Daily Returns

PHX Energy Services  vs.  Fast Retailing Co

PHX Energy Services

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days PHX Energy Services has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's technical indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

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.

Pair Trading with PHX Energy and Fast Retailing

The main advantage of trading using opposite PHX Energy and Fast Retailing positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if PHX Energy 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 PHX Energy Services 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.