Correlation Between Fast Retailing and Gulf Island

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

Diversification Opportunities for Fast Retailing and Gulf Island

-0.17

Correlation Coefficient

Fast Retailing  Gulf Island

Good diversification

The 3 months correlation between Fast and Gulf is -0.17. Overlapping area represents the amount of risk that can be diversified away by holding Fast Retailing Co and Gulf Island Fabrication in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gulf Island Fabrication 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 Gulf Island. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gulf Island Fabrication has no effect on the direction of Fast Retailing i.e., Fast Retailing and Gulf Island go up and down completely randomly.

Pair Corralation between Fast Retailing and Gulf Island

Assuming the 90 days horizon Fast Retailing Co is expected to generate 3.73 times more return on investment than Gulf Island. However, Fast Retailing is 3.73 times more volatile than Gulf Island Fabrication. It trades about 0.05 of its potential returns per unit of risk. Gulf Island Fabrication is currently generating about 0.04 per unit of risk. If you would invest  19,143  in Fast Retailing Co on September 28, 2024 and sell it today you would earn a total of  14,117  from holding Fast Retailing Co or generate 73.74% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	75.96%
Values	Daily Returns

Fast Retailing Co  vs.  Gulf Island Fabrication

Fast Retailing

Risk-Adjusted Performance

5 of 100

Modest

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

Gulf Island Fabrication

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Gulf Island Fabrication are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite fairly unfluctuating technical and fundamental indicators, Gulf Island demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Fast Retailing and Gulf Island

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

The idea behind Fast Retailing Co and Gulf Island Fabrication 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.