Correlation Between Air France and Frontier Group

Can any of the company-specific risk be diversified away by investing in both Air France and Frontier Group 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 Air France and Frontier Group into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Air France KLM and Frontier Group Holdings, you can compare the effects of market volatilities on Air France and Frontier Group 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 Air France with a short position of Frontier Group. Check out your portfolio center. Please also check ongoing floating volatility patterns of Air France and Frontier Group.

Diversification Opportunities for Air France and Frontier Group

-0.69

Correlation Coefficient

Air France  Frontier Group

Excellent diversification

The 3 months correlation between Air and Frontier is -0.69. Overlapping area represents the amount of risk that can be diversified away by holding Air France KLM and Frontier Group Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Frontier Group Holdings and Air France 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 Air France KLM are associated (or correlated) with Frontier Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Frontier Group Holdings has no effect on the direction of Air France i.e., Air France and Frontier Group go up and down completely randomly.

Pair Corralation between Air France and Frontier Group

Assuming the 90 days horizon Air France KLM is expected to generate 1.04 times more return on investment than Frontier Group. However, Air France is 1.04 times more volatile than Frontier Group Holdings. It trades about 0.07 of its potential returns per unit of risk. Frontier Group Holdings is currently generating about -0.11 per unit of risk. If you would invest  82.00  in Air France KLM on December 29, 2024 and sell it today you would earn a total of  13.00  from holding Air France KLM or generate 15.85% return on investment over 90 days.

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

Air France KLM  vs.  Frontier Group Holdings

Air France KLM

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Air France KLM are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Air France showed solid returns over the last few months and may actually be approaching a breakup point.

Frontier Group Holdings

Risk-Adjusted Performance

Very Weak

Over the last 90 days Frontier Group Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's fundamental indicators remain rather sound which may send shares a bit higher in April 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Air France and Frontier Group

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

The idea behind Air France KLM and Frontier Group Holdings 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.