Correlation Between Frontline and Cool

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

By analyzing existing cross correlation between Frontline and Cool Company, you can compare the effects of market volatilities on Frontline and Cool 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 Cool. Check out your portfolio center. Please also check ongoing floating volatility patterns of Frontline and Cool.

Diversification Opportunities for Frontline and Cool

0.89

Correlation Coefficient

Frontline  Cool

Very poor diversification

The 3 months correlation between Frontline and Cool is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Frontline and Cool Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cool Company 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 Cool. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cool Company has no effect on the direction of Frontline i.e., Frontline and Cool go up and down completely randomly.

Pair Corralation between Frontline and Cool

Considering the 90-day investment horizon Frontline is expected to generate 1.29 times more return on investment than Cool. However, Frontline is 1.29 times more volatile than Cool Company. It trades about 0.04 of its potential returns per unit of risk. Cool Company is currently generating about -0.02 per unit of risk. If you would invest  975.00  in Frontline on September 12, 2024 and sell it today you would earn a total of  508.00  from holding Frontline or generate 52.1% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	88.48%
Values	Daily Returns

Frontline  vs.  Cool Company

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. In spite of conflicting performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in January 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Cool Company

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Cool Company has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's fundamental indicators remain very healthy which may send shares a bit higher in January 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Frontline and Cool

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

The idea behind Frontline and Cool Company 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 Global Correlations module to find global opportunities by holding instruments from different markets.