Correlation Between Fast Retailing and CSL

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

Diversification Opportunities for Fast Retailing and CSL

-0.51

Correlation Coefficient

Fast Retailing  CSL

Excellent diversification

The 3 months correlation between Fast and CSL is -0.51. Overlapping area represents the amount of risk that can be diversified away by holding Fast Retailing Co and CSL in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CSL 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 CSL. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CSL has no effect on the direction of Fast Retailing i.e., Fast Retailing and CSL go up and down completely randomly.

Pair Corralation between Fast Retailing and CSL

Assuming the 90 days horizon Fast Retailing Co is expected to under-perform the CSL. In addition to that, Fast Retailing is 1.27 times more volatile than CSL. It trades about -0.08 of its total potential returns per unit of risk. CSL is currently generating about 0.13 per unit of volatility. If you would invest  7,915  in CSL on April 26, 2025 and sell it today you would earn a total of  971.00  from holding CSL or generate 12.27% return on investment over 90 days.

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

Fast Retailing Co  vs.  CSL

Fast Retailing

Risk-Adjusted Performance

Very Weak

Over the last 90 days Fast Retailing Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

CSL

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in CSL are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile essential indicators, CSL showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Fast Retailing and CSL

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

The idea behind Fast Retailing Co and CSL 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.