Correlation Between Fast Retailing and Diageo PLC
Can any of the company-specific risk be diversified away by investing in both Fast Retailing and Diageo PLC 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 Diageo PLC 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 Diageo PLC ADR, you can compare the effects of market volatilities on Fast Retailing and Diageo PLC 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 Diageo PLC. Check out your portfolio center. Please also check ongoing floating volatility patterns of Fast Retailing and Diageo PLC.
Diversification Opportunities for Fast Retailing and Diageo PLC
0.03 | Correlation Coefficient |
Significant diversification
The 3 months correlation between Fast and Diageo is 0.03. Overlapping area represents the amount of risk that can be diversified away by holding Fast Retailing Co and Diageo PLC ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Diageo PLC ADR 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 Diageo PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Diageo PLC ADR has no effect on the direction of Fast Retailing i.e., Fast Retailing and Diageo PLC go up and down completely randomly.
Pair Corralation between Fast Retailing and Diageo PLC
Assuming the 90 days horizon Fast Retailing Co is expected to generate 0.86 times more return on investment than Diageo PLC. However, Fast Retailing Co is 1.16 times less risky than Diageo PLC. It trades about -0.21 of its potential returns per unit of risk. Diageo PLC ADR is currently generating about -0.35 per unit of risk. If you would invest 33,050 in Fast Retailing Co on August 26, 2024 and sell it today you would lose (1,715) from holding Fast Retailing Co or give up 5.19% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Fast Retailing Co vs. Diageo PLC ADR
Performance |
| Timeline |
| Fast Retailing |
| Diageo PLC ADR |
Fast Retailing and Diageo PLC Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Fast Retailing and Diageo PLC
The main advantage of trading using opposite Fast Retailing and Diageo PLC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Fast Retailing position performs unexpectedly, Diageo PLC 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 Diageo PLC will offset losses from the drop in Diageo PLC's long position.| Fast Retailing vs. Reitmans Limited | Fast Retailing vs. Reitmans Limited | Fast Retailing vs. Lulus Fashion Lounge | Fast Retailing vs. Duluth Holdings |
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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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.
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