Correlation Between Fast Retailing and Suntory Beverage

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

Diversification Opportunities for Fast Retailing and Suntory Beverage

-0.34

Correlation Coefficient

Fast Retailing  Suntory Beverage

Very good diversification

The 3 months correlation between Fast and Suntory is -0.34. Overlapping area represents the amount of risk that can be diversified away by holding Fast Retailing Co and Suntory Beverage Food in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Suntory Beverage Food 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 Suntory Beverage. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Suntory Beverage Food has no effect on the direction of Fast Retailing i.e., Fast Retailing and Suntory Beverage go up and down completely randomly.

Pair Corralation between Fast Retailing and Suntory Beverage

Assuming the 90 days trading horizon Fast Retailing Co is expected to generate 1.07 times more return on investment than Suntory Beverage. However, Fast Retailing is 1.07 times more volatile than Suntory Beverage Food. It trades about 0.07 of its potential returns per unit of risk. Suntory Beverage Food is currently generating about 0.01 per unit of risk. If you would invest  19,333  in Fast Retailing Co on September 5, 2024 and sell it today you would earn a total of  13,127  from holding Fast Retailing Co or generate 67.9% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.8%
Values	Daily Returns

Fast Retailing Co  vs.  Suntory Beverage Food

Fast Retailing

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Fast Retailing Co are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, Fast Retailing exhibited solid returns over the last few months and may actually be approaching a breakup point.

Suntory Beverage Food

Risk-Adjusted Performance

0 of 100

Very Weak

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

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

The idea behind Fast Retailing Co and Suntory Beverage Food 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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.