Correlation Between Frontier Transport and Life Healthcare

Can any of the company-specific risk be diversified away by investing in both Frontier Transport and Life Healthcare 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 Life Healthcare 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 Life Healthcare, you can compare the effects of market volatilities on Frontier Transport and Life Healthcare 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 Life Healthcare. Check out your portfolio center. Please also check ongoing floating volatility patterns of Frontier Transport and Life Healthcare.

Diversification Opportunities for Frontier Transport and Life Healthcare

0.07

Correlation Coefficient

Frontier Transport  Life Healthcare

Significant diversification

The 3 months correlation between Frontier and Life is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding Frontier Transport Holdings and Life Healthcare in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Life Healthcare 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 Life Healthcare. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Life Healthcare has no effect on the direction of Frontier Transport i.e., Frontier Transport and Life Healthcare go up and down completely randomly.

Pair Corralation between Frontier Transport and Life Healthcare

Assuming the 90 days trading horizon Frontier Transport is expected to generate 3.02 times less return on investment than Life Healthcare. In addition to that, Frontier Transport is 2.71 times more volatile than Life Healthcare. It trades about 0.02 of its total potential returns per unit of risk. Life Healthcare is currently generating about 0.13 per unit of volatility. If you would invest  151,700  in Life Healthcare on September 16, 2024 and sell it today you would earn a total of  21,400  from holding Life Healthcare or generate 14.11% return on investment over 90 days.

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

Frontier Transport Holdings  vs.  Life Healthcare

Frontier Transport

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Frontier Transport Holdings are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental indicators, Frontier Transport is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Life Healthcare

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Life Healthcare are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, Life Healthcare exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Frontier Transport and Life Healthcare

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

The idea behind Frontier Transport Holdings and Life Healthcare 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.

Check out your portfolio center.

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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.