Correlation Between Fast Retailing and Becton Dickinson

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

Diversification Opportunities for Fast Retailing and Becton Dickinson

0.15

Correlation Coefficient

Fast Retailing  Becton Dickinson

Average diversification

The 3 months correlation between Fast and Becton is 0.15. Overlapping area represents the amount of risk that can be diversified away by holding Fast Retailing Co and Becton Dickinson and in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Becton Dickinson 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 Becton Dickinson. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Becton Dickinson has no effect on the direction of Fast Retailing i.e., Fast Retailing and Becton Dickinson go up and down completely randomly.

Pair Corralation between Fast Retailing and Becton Dickinson

Assuming the 90 days trading horizon Fast Retailing Co is expected to generate 1.19 times more return on investment than Becton Dickinson. However, Fast Retailing is 1.19 times more volatile than Becton Dickinson and. It trades about 0.16 of its potential returns per unit of risk. Becton Dickinson and is currently generating about 0.04 per unit of risk. If you would invest  27,860  in Fast Retailing Co on September 14, 2024 and sell it today you would earn a total of  5,800  from holding Fast Retailing Co or generate 20.82% return on investment over 90 days.

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

Fast Retailing Co  vs.  Becton Dickinson and

Fast Retailing

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Fast Retailing Co are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain basic indicators, Fast Retailing exhibited solid returns over the last few months and may actually be approaching a breakup point.

Becton Dickinson

Risk-Adjusted Performance

3 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Becton Dickinson and are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Becton Dickinson is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Fast Retailing and Becton Dickinson

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

The idea behind Fast Retailing Co and Becton Dickinson and 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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.