Correlation Between Allegiant Travel and Frontier Group

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

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

Diversification Opportunities for Allegiant Travel and Frontier Group

0.69

Correlation Coefficient

Allegiant Travel  Frontier Group

Poor diversification

The 3 months correlation between Allegiant and Frontier is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Allegiant Travel 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 Allegiant Travel 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 Allegiant Travel 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 Allegiant Travel i.e., Allegiant Travel and Frontier Group go up and down completely randomly.

Pair Corralation between Allegiant Travel and Frontier Group

Given the investment horizon of 90 days Allegiant Travel is expected to generate 2.85 times less return on investment than Frontier Group. But when comparing it to its historical volatility, Allegiant Travel is 1.38 times less risky than Frontier Group. It trades about 0.1 of its potential returns per unit of risk. Frontier Group Holdings is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  539.00  in Frontier Group Holdings on November 19, 2024 and sell it today you would earn a total of  346.00  from holding Frontier Group Holdings or generate 64.19% return on investment over 90 days.

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

Allegiant Travel  vs.  Frontier Group Holdings

Allegiant Travel

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Allegiant Travel are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively conflicting technical and fundamental indicators, Allegiant Travel unveiled solid returns over the last few months and may actually be approaching a breakup point.

Frontier Group Holdings

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Frontier Group Holdings are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain fundamental indicators, Frontier Group exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Allegiant Travel and Frontier Group

The main advantage of trading using opposite Allegiant Travel and Frontier Group positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Allegiant Travel 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 Allegiant Travel 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.