Correlation Between Carnival and Frontdoor

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

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

Diversification Opportunities for Carnival and Frontdoor

0.93

Correlation Coefficient

Carnival  Frontdoor

Almost no diversification

The 3 months correlation between Carnival and Frontdoor is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Carnival and Frontdoor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Frontdoor and Carnival 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 Carnival are associated (or correlated) with Frontdoor. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Frontdoor has no effect on the direction of Carnival i.e., Carnival and Frontdoor go up and down completely randomly.

Pair Corralation between Carnival and Frontdoor

Considering the 90-day investment horizon Carnival is expected to generate 0.85 times more return on investment than Frontdoor. However, Carnival is 1.18 times less risky than Frontdoor. It trades about -0.12 of its potential returns per unit of risk. Frontdoor is currently generating about -0.16 per unit of risk. If you would invest  2,505  in Carnival on December 30, 2024 and sell it today you would lose (518.00) from holding Carnival or give up 20.68% of portfolio value over 90 days.

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

Carnival  vs.  Frontdoor

Carnival

Risk-Adjusted Performance

Very Weak

Over the last 90 days Carnival has generated negative risk-adjusted returns adding no value to investors with long positions. Despite conflicting performance in the last few months, the Stock's fundamental indicators remain quite persistent which may send shares a bit higher in April 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Frontdoor

Risk-Adjusted Performance

Very Weak

Over the last 90 days Frontdoor has generated negative risk-adjusted returns adding no value to investors with long positions. Even with unfluctuating performance in the last few months, the Stock's fundamental indicators remain relatively invariable which may send shares a bit higher in April 2025. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

Pair Trading with Carnival and Frontdoor

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

The idea behind Carnival and Frontdoor 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.

Check out your portfolio center.

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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.