Correlation Between Fast Retailing and Nomad Foods

Can any of the company-specific risk be diversified away by investing in both Fast Retailing and Nomad Foods 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 Nomad Foods 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 Nomad Foods, you can compare the effects of market volatilities on Fast Retailing and Nomad Foods 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 Nomad Foods. Check out your portfolio center. Please also check ongoing floating volatility patterns of Fast Retailing and Nomad Foods.

Diversification Opportunities for Fast Retailing and Nomad Foods

0.22

Correlation Coefficient

Fast Retailing  Nomad Foods

Modest diversification

The 3 months correlation between Fast and Nomad is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding Fast Retailing Co and Nomad Foods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nomad Foods 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 Nomad Foods. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nomad Foods has no effect on the direction of Fast Retailing i.e., Fast Retailing and Nomad Foods go up and down completely randomly.

Pair Corralation between Fast Retailing and Nomad Foods

Assuming the 90 days trading horizon Fast Retailing Co is expected to generate 1.02 times more return on investment than Nomad Foods. However, Fast Retailing is 1.02 times more volatile than Nomad Foods. It trades about 0.19 of its potential returns per unit of risk. Nomad Foods is currently generating about -0.07 per unit of risk. If you would invest  29,980  in Fast Retailing Co on September 23, 2024 and sell it today you would earn a total of  2,160  from holding Fast Retailing Co or generate 7.2% return on investment over 90 days.

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

Fast Retailing Co  vs.  Nomad Foods

Fast Retailing

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Fast Retailing Co are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain basic indicators, Fast Retailing may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Nomad Foods

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Nomad Foods has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Nomad Foods is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Fast Retailing and Nomad Foods

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

The idea behind Fast Retailing Co and Nomad Foods 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.