Correlation Between Frontdoor and Diversey Holdings

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

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

Diversification Opportunities for Frontdoor and Diversey Holdings

0.77

Correlation Coefficient

Frontdoor  Diversey Holdings

Poor diversification

The 3 months correlation between Frontdoor and Diversey is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Frontdoor and Diversey Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Diversey Holdings and Frontdoor 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 Frontdoor are associated (or correlated) with Diversey Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Diversey Holdings has no effect on the direction of Frontdoor i.e., Frontdoor and Diversey Holdings go up and down completely randomly.

Pair Corralation between Frontdoor and Diversey Holdings

If you would invest  4,799  in Frontdoor on August 31, 2024 and sell it today you would earn a total of  1,018  from holding Frontdoor or generate 21.21% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	2.22%
Values	Daily Returns

Frontdoor  vs.  Diversey Holdings

Frontdoor

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Frontdoor are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Even with relatively unfluctuating fundamental indicators, Frontdoor reported solid returns over the last few months and may actually be approaching a breakup point.

Diversey Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Diversey Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong technical and fundamental indicators, Diversey Holdings is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Frontdoor and Diversey Holdings

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

The idea behind Frontdoor and Diversey Holdings 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 Stocks Directory module to find actively traded stocks across global markets.