Correlation Between Fast Retailing and China Water
Can any of the company-specific risk be diversified away by investing in both Fast Retailing and China Water 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 China Water 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 China Water Affairs, you can compare the effects of market volatilities on Fast Retailing and China Water 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 China Water. Check out your portfolio center. Please also check ongoing floating volatility patterns of Fast Retailing and China Water.
Diversification Opportunities for Fast Retailing and China Water
0.55 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Fast and China is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding Fast Retailing Co and China Water Affairs in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Water Affairs 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 China Water. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Water Affairs has no effect on the direction of Fast Retailing i.e., Fast Retailing and China Water go up and down completely randomly.
Pair Corralation between Fast Retailing and China Water
Assuming the 90 days trading horizon Fast Retailing is expected to generate 1.91 times less return on investment than China Water. But when comparing it to its historical volatility, Fast Retailing Co is 2.29 times less risky than China Water. It trades about 0.08 of its potential returns per unit of risk. China Water Affairs is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest 24.00 in China Water Affairs on September 12, 2024 and sell it today you would earn a total of 35.00 from holding China Water Affairs or generate 145.83% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Fast Retailing Co vs. China Water Affairs
Performance |
| Timeline |
| Fast Retailing |
| China Water Affairs |
Fast Retailing and China Water Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Fast Retailing and China Water
The main advantage of trading using opposite Fast Retailing and China Water positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Fast Retailing position performs unexpectedly, China Water 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 China Water will offset losses from the drop in China Water's long position.| Fast Retailing vs. Mitsubishi Materials | Fast Retailing vs. Martin Marietta Materials | Fast Retailing vs. Infrastrutture Wireless Italiane | Fast Retailing vs. The Yokohama Rubber |
| China Water vs. TSOGO SUN GAMING | China Water vs. GAMESTOP | China Water vs. Sunny Optical Technology | China Water vs. Media and Games |
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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.
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