Correlation Between Fast Retailing and Eagle Materials

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

Diversification Opportunities for Fast Retailing and Eagle Materials

0.11

Correlation Coefficient

Fast Retailing  Eagle Materials

Average diversification

The 3 months correlation between Fast and Eagle is 0.11. Overlapping area represents the amount of risk that can be diversified away by holding Fast Retailing Co and Eagle Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eagle Materials 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 Eagle Materials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Eagle Materials has no effect on the direction of Fast Retailing i.e., Fast Retailing and Eagle Materials go up and down completely randomly.

Pair Corralation between Fast Retailing and Eagle Materials

Assuming the 90 days trading horizon Fast Retailing Co is expected to generate 1.07 times more return on investment than Eagle Materials. However, Fast Retailing is 1.07 times more volatile than Eagle Materials. It trades about 0.06 of its potential returns per unit of risk. Eagle Materials is currently generating about -0.04 per unit of risk. If you would invest  30,030  in Fast Retailing Co on September 22, 2024 and sell it today you would earn a total of  2,110  from holding Fast Retailing Co or generate 7.03% 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.  Eagle Materials

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.

Eagle Materials

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Eagle Materials has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Eagle Materials 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 Eagle Materials

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

The idea behind Fast Retailing Co and Eagle Materials 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.