Correlation Between Frontline and Borr Drilling

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

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

Diversification Opportunities for Frontline and Borr Drilling

0.71

Correlation Coefficient

Frontline  Borr Drilling

Poor diversification

The 3 months correlation between Frontline and Borr is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Frontline and Borr Drilling in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Borr Drilling and Frontline 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 Frontline are associated (or correlated) with Borr Drilling. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Borr Drilling has no effect on the direction of Frontline i.e., Frontline and Borr Drilling go up and down completely randomly.

Pair Corralation between Frontline and Borr Drilling

Assuming the 90 days trading horizon Frontline is expected to generate 0.93 times more return on investment than Borr Drilling. However, Frontline is 1.07 times less risky than Borr Drilling. It trades about 0.05 of its potential returns per unit of risk. Borr Drilling is currently generating about -0.01 per unit of risk. If you would invest  11,856  in Frontline on October 26, 2024 and sell it today you would earn a total of  6,214  from holding Frontline or generate 52.41% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	96.96%
Values	Daily Returns

Frontline  vs.  Borr Drilling

Frontline

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Frontline has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest conflicting performance, the Stock's basic indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Borr Drilling

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Borr Drilling has generated negative risk-adjusted returns adding no value to investors with long positions. Despite conflicting performance in the last few months, the Stock's essential indicators remain quite persistent which may send shares a bit higher in February 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Pair Trading with Frontline and Borr Drilling

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

The idea behind Frontline and Borr Drilling 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.