Correlation Between Fast Retailing and New Hope

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

Diversification Opportunities for Fast Retailing and New Hope

0.42

Correlation Coefficient

Fast Retailing  New Hope

Very weak diversification

The 3 months correlation between Fast and New is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding Fast Retailing Co and New Hope in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on New Hope 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 New Hope. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of New Hope has no effect on the direction of Fast Retailing i.e., Fast Retailing and New Hope go up and down completely randomly.

Pair Corralation between Fast Retailing and New Hope

Assuming the 90 days trading horizon Fast Retailing Co is expected to generate 0.81 times more return on investment than New Hope. However, Fast Retailing Co is 1.23 times less risky than New Hope. It trades about 0.13 of its potential returns per unit of risk. New Hope is currently generating about 0.04 per unit of risk. If you would invest  23,340  in Fast Retailing Co on September 22, 2024 and sell it today you would earn a total of  8,800  from holding Fast Retailing Co or generate 37.7% return on investment over 90 days.

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

Fast Retailing Co  vs.  New Hope

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.

New Hope

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in New Hope are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, New Hope may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Fast Retailing and New Hope

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

The idea behind Fast Retailing Co and New Hope 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.