Correlation Between Frost Credit and Adams Natural

Can any of the company-specific risk be diversified away by investing in both Frost Credit and Adams Natural 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 Adams Natural 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 Adams Natural Resources, you can compare the effects of market volatilities on Frost Credit and Adams Natural 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 Adams Natural. Check out your portfolio center. Please also check ongoing floating volatility patterns of Frost Credit and Adams Natural.

Diversification Opportunities for Frost Credit and Adams Natural

0.12

Correlation Coefficient

Frost Credit  Adams Natural

Average diversification

The 3 months correlation between Frost and Adams is 0.12. Overlapping area represents the amount of risk that can be diversified away by holding Frost Credit Fund and Adams Natural Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Adams Natural Resources 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 Adams Natural. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Adams Natural Resources has no effect on the direction of Frost Credit i.e., Frost Credit and Adams Natural go up and down completely randomly.

Pair Corralation between Frost Credit and Adams Natural

Assuming the 90 days horizon Frost Credit is expected to generate 1.06 times less return on investment than Adams Natural. But when comparing it to its historical volatility, Frost Credit Fund is 6.39 times less risky than Adams Natural. It trades about 0.19 of its potential returns per unit of risk. Adams Natural Resources is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  1,941  in Adams Natural Resources on October 10, 2024 and sell it today you would earn a total of  296.00  from holding Adams Natural Resources or generate 15.25% return on investment over 90 days.

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

Frost Credit Fund  vs.  Adams Natural Resources

Frost Credit

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Frost Credit Fund are ranked lower than 1 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, Frost Credit is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Adams Natural Resources

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Adams Natural Resources has generated negative risk-adjusted returns adding no value to fund investors. In spite of very healthy technical and fundamental indicators, Adams Natural is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Frost Credit and Adams Natural

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

The idea behind Frost Credit Fund and Adams Natural Resources 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 Transaction History module to view history of all your transactions and understand their impact on performance.