Correlation Between Fast Retailing and ITOCHU

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

Diversification Opportunities for Fast Retailing and ITOCHU

0.03

Correlation Coefficient

Fast Retailing  ITOCHU

Significant diversification

The 3 months correlation between Fast and ITOCHU is 0.03. Overlapping area represents the amount of risk that can be diversified away by holding Fast Retailing Co and ITOCHU in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ITOCHU 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 ITOCHU. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ITOCHU has no effect on the direction of Fast Retailing i.e., Fast Retailing and ITOCHU go up and down completely randomly.

Pair Corralation between Fast Retailing and ITOCHU

Assuming the 90 days trading horizon Fast Retailing Co is expected to generate 0.94 times more return on investment than ITOCHU. However, Fast Retailing Co is 1.07 times less risky than ITOCHU. It trades about 0.07 of its potential returns per unit of risk. ITOCHU is currently generating about 0.06 per unit of risk. If you would invest  19,000  in Fast Retailing Co on September 23, 2024 and sell it today you would earn a total of  13,140  from holding Fast Retailing Co or generate 69.16% 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.  ITOCHU

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.

ITOCHU

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ITOCHU has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, ITOCHU is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Fast Retailing and ITOCHU

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

The idea behind Fast Retailing Co and ITOCHU 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.