Correlation Between American Funds and Frontier Mfg

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

By analyzing existing cross correlation between American Funds New and Frontier Mfg Global, you can compare the effects of market volatilities on American Funds and Frontier Mfg 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 American Funds with a short position of Frontier Mfg. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Funds and Frontier Mfg.

Diversification Opportunities for American Funds and Frontier Mfg

0.83

Correlation Coefficient

American Funds  Frontier Mfg

Very poor diversification

The 3 months correlation between American and Frontier is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding American Funds New and Frontier Mfg Global in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Frontier Mfg Global and American Funds 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 American Funds New are associated (or correlated) with Frontier Mfg. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Frontier Mfg Global has no effect on the direction of American Funds i.e., American Funds and Frontier Mfg go up and down completely randomly.

Pair Corralation between American Funds and Frontier Mfg

Assuming the 90 days horizon American Funds New is expected to under-perform the Frontier Mfg. In addition to that, American Funds is 1.25 times more volatile than Frontier Mfg Global. It trades about -0.04 of its total potential returns per unit of risk. Frontier Mfg Global is currently generating about -0.04 per unit of volatility. If you would invest  1,553  in Frontier Mfg Global on December 2, 2024 and sell it today you would lose (38.00) from holding Frontier Mfg Global or give up 2.45% of portfolio value over 90 days.

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

American Funds New  vs.  Frontier Mfg Global

American Funds New

Risk-Adjusted Performance

Very Weak

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

Frontier Mfg Global

Risk-Adjusted Performance

Very Weak

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

Pair Trading with American Funds and Frontier Mfg

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

The idea behind American Funds New and Frontier Mfg Global 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.