Correlation Between Fast Retailing and Orient Overseas

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

Diversification Opportunities for Fast Retailing and Orient Overseas

-0.2

Correlation Coefficient

Fast Retailing  Orient Overseas

Good diversification

The 3 months correlation between Fast and Orient is -0.2. Overlapping area represents the amount of risk that can be diversified away by holding Fast Retailing Co and Orient Overseas Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Orient Overseas 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 Orient Overseas. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Orient Overseas has no effect on the direction of Fast Retailing i.e., Fast Retailing and Orient Overseas go up and down completely randomly.

Pair Corralation between Fast Retailing and Orient Overseas

Assuming the 90 days trading horizon Fast Retailing Co is expected to under-perform the Orient Overseas. But the stock apears to be less risky and, when comparing its historical volatility, Fast Retailing Co is 1.3 times less risky than Orient Overseas. The stock trades about -0.08 of its potential returns per unit of risk. The Orient Overseas Limited is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  1,083  in Orient Overseas Limited on April 22, 2025 and sell it today you would earn a total of  375.00  from holding Orient Overseas Limited or generate 34.63% return on investment over 90 days.

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

Fast Retailing Co  vs.  Orient Overseas Limited

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. In spite of latest uncertain performance, the Stock's basic indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Orient Overseas

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Orient Overseas Limited are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile forward indicators, Orient Overseas reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Fast Retailing and Orient Overseas

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

The idea behind Fast Retailing Co and Orient Overseas Limited 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.