Correlation Between Frontier Transport and Europa Metals

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

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

Diversification Opportunities for Frontier Transport and Europa Metals

0.54

Correlation Coefficient

Frontier Transport  Europa Metals

Very weak diversification

The 3 months correlation between Frontier and Europa is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding Frontier Transport Holdings and Europa Metals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Europa Metals and Frontier Transport 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 Frontier Transport Holdings are associated (or correlated) with Europa Metals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Europa Metals has no effect on the direction of Frontier Transport i.e., Frontier Transport and Europa Metals go up and down completely randomly.

Pair Corralation between Frontier Transport and Europa Metals

Assuming the 90 days trading horizon Frontier Transport Holdings is expected to under-perform the Europa Metals. But the stock apears to be less risky and, when comparing its historical volatility, Frontier Transport Holdings is 4.59 times less risky than Europa Metals. The stock trades about -0.08 of its potential returns per unit of risk. The Europa Metals is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  3,500  in Europa Metals on December 23, 2024 and sell it today you would lose (500.00) from holding Europa Metals or give up 14.29% of portfolio value over 90 days.

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

Frontier Transport Holdings  vs.  Europa Metals

Frontier Transport

Risk-Adjusted Performance

Very Weak

Over the last 90 days Frontier Transport Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Europa Metals

Risk-Adjusted Performance

Very Weak

Over the last 90 days Europa Metals has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Europa Metals is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Frontier Transport and Europa Metals

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

The idea behind Frontier Transport Holdings and Europa Metals 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 Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.