Correlation Between DouYu International and Frontier Communications

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

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

Diversification Opportunities for DouYu International and Frontier Communications

-0.75

Correlation Coefficient

DouYu International  Frontier Communications

Pay attention - limited upside

The 3 months correlation between DouYu and Frontier is -0.75. Overlapping area represents the amount of risk that can be diversified away by holding DouYu International Holdings and Frontier Communications Parent in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Frontier Communications and DouYu International 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 DouYu International Holdings are associated (or correlated) with Frontier Communications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Frontier Communications has no effect on the direction of DouYu International i.e., DouYu International and Frontier Communications go up and down completely randomly.

Pair Corralation between DouYu International and Frontier Communications

Given the investment horizon of 90 days DouYu International is expected to generate 1.05 times less return on investment than Frontier Communications. But when comparing it to its historical volatility, DouYu International Holdings is 1.05 times less risky than Frontier Communications. It trades about 0.09 of its potential returns per unit of risk. Frontier Communications Parent is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  2,804  in Frontier Communications Parent on September 1, 2024 and sell it today you would earn a total of  677.00  from holding Frontier Communications Parent or generate 24.14% return on investment over 90 days.

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

DouYu International Holdings  vs.  Frontier Communications Parent

DouYu International

Risk-Adjusted Performance

7 of 100

OK

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

Frontier Communications

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Frontier Communications Parent are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Even with relatively unfluctuating fundamental drivers, Frontier Communications reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with DouYu International and Frontier Communications

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

The idea behind DouYu International Holdings and Frontier Communications Parent 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.