Correlation Between Frost Kempner and Frost Growth

Can any of the company-specific risk be diversified away by investing in both Frost Kempner 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 Kempner 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 Kempner Treasury and Frost Growth Equity, you can compare the effects of market volatilities on Frost Kempner 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 Kempner with a short position of Frost Growth. Check out your portfolio center. Please also check ongoing floating volatility patterns of Frost Kempner and Frost Growth.

Diversification Opportunities for Frost Kempner and Frost Growth

-0.69

Correlation Coefficient

Frost Kempner  Frost Growth

Excellent diversification

The 3 months correlation between Frost and Frost is -0.69. Overlapping area represents the amount of risk that can be diversified away by holding Frost Kempner Treasury 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 Kempner 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 Kempner Treasury 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 Kempner i.e., Frost Kempner and Frost Growth go up and down completely randomly.

Pair Corralation between Frost Kempner and Frost Growth

Assuming the 90 days horizon Frost Kempner Treasury is expected to generate 0.09 times more return on investment than Frost Growth. However, Frost Kempner Treasury is 11.28 times less risky than Frost Growth. It trades about 0.23 of its potential returns per unit of risk. Frost Growth Equity is currently generating about -0.09 per unit of risk. If you would invest  834.00  in Frost Kempner Treasury on December 27, 2024 and sell it today you would earn a total of  14.00  from holding Frost Kempner Treasury or generate 1.68% return on investment over 90 days.

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

Frost Kempner Treasury  vs.  Frost Growth Equity

Frost Kempner Treasury

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Frost Kempner Treasury are ranked lower than 17 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Frost Kempner 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

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 Kempner and Frost Growth

The main advantage of trading using opposite Frost Kempner and Frost Growth positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Frost Kempner 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 Kempner Treasury 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.