Correlation Between Frost Credit and Frost Growth

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

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

Diversification Opportunities for Frost Credit and Frost Growth

-0.49

Correlation Coefficient

Frost Credit  Frost Growth

Very good diversification

The 3 months correlation between Frost and Frost is -0.49. Overlapping area represents the amount of risk that can be diversified away by holding Frost Credit Fund and Frost Growth Equity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Frost Growth Equity and Frost Credit 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 Frost Credit Fund are associated (or correlated) with Frost Growth. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Frost Growth Equity has no effect on the direction of Frost Credit i.e., Frost Credit and Frost Growth go up and down completely randomly.

Pair Corralation between Frost Credit and Frost Growth

Assuming the 90 days horizon Frost Credit Fund is expected to generate 0.07 times more return on investment than Frost Growth. However, Frost Credit Fund is 14.59 times less risky than Frost Growth. It trades about -0.01 of its potential returns per unit of risk. Frost Growth Equity is currently generating about -0.06 per unit of risk. If you would invest  951.00  in Frost Credit Fund on September 17, 2024 and sell it today you would lose (1.00) from holding Frost Credit Fund or give up 0.11% of portfolio value over 90 days.

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

Frost Credit Fund  vs.  Frost Growth Equity

Frost Credit

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Frost Credit Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong forward indicators, Frost Credit is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Frost Growth Equity

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Frost Growth Equity has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's technical and fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Pair Trading with Frost Credit and Frost Growth

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

The idea behind Frost Credit Fund and Frost Growth Equity 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.