Correlation Between Frost Low and Highland Long/short

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

By analyzing existing cross correlation between Frost Low Duration and Highland Longshort Healthcare, you can compare the effects of market volatilities on Frost Low and Highland Long/short 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 Low with a short position of Highland Long/short. Check out your portfolio center. Please also check ongoing floating volatility patterns of Frost Low and Highland Long/short.

Diversification Opportunities for Frost Low and Highland Long/short

-0.15

Correlation Coefficient

Frost Low  Highland Long/short

Good diversification

The 3 months correlation between Frost and Highland is -0.15. Overlapping area represents the amount of risk that can be diversified away by holding Frost Low Duration and Highland Longshort Healthcare in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Highland Long/short and Frost Low 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 Low Duration are associated (or correlated) with Highland Long/short. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Highland Long/short has no effect on the direction of Frost Low i.e., Frost Low and Highland Long/short go up and down completely randomly.

Pair Corralation between Frost Low and Highland Long/short

Assuming the 90 days horizon Frost Low Duration is expected to generate 0.48 times more return on investment than Highland Long/short. However, Frost Low Duration is 2.1 times less risky than Highland Long/short. It trades about -0.39 of its potential returns per unit of risk. Highland Longshort Healthcare is currently generating about -0.22 per unit of risk. If you would invest  988.00  in Frost Low Duration on October 9, 2024 and sell it today you would lose (7.00) from holding Frost Low Duration or give up 0.71% of portfolio value over 90 days.

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

Frost Low Duration  vs.  Highland Longshort Healthcare

Frost Low Duration

Risk-Adjusted Performance

0 of 100

Very Weak

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

Highland Long/short

Risk-Adjusted Performance

0 of 100

Weak

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

Pair Trading with Frost Low and Highland Long/short

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

The idea behind Frost Low Duration and Highland Longshort Healthcare 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.