Correlation Between Fast Retailing and Sea

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

Diversification Opportunities for Fast Retailing and Sea

0.21

Correlation Coefficient

Fast Retailing  Sea

Modest diversification

The 3 months correlation between Fast and Sea is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding Fast Retailing Co and Sea in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sea 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 Sea. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sea has no effect on the direction of Fast Retailing i.e., Fast Retailing and Sea go up and down completely randomly.

Pair Corralation between Fast Retailing and Sea

Assuming the 90 days horizon Fast Retailing is expected to generate 2.92 times less return on investment than Sea. In addition to that, Fast Retailing is 1.0 times more volatile than Sea. It trades about 0.07 of its total potential returns per unit of risk. Sea is currently generating about 0.2 per unit of volatility. If you would invest  3,858  in Sea on September 17, 2024 and sell it today you would earn a total of  7,789  from holding Sea or generate 201.89% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	88.26%
Values	Daily Returns

Fast Retailing Co  vs.  Sea

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.

Sea

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Sea are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, Sea exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Fast Retailing and Sea

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

The idea behind Fast Retailing Co and Sea 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.

Check out your portfolio center.

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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.