Correlation Between Frontier Transport and Transpaco

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

Diversification Opportunities for Frontier Transport and Transpaco

0.26

Correlation Coefficient

Frontier Transport  Transpaco

Modest diversification

The 3 months correlation between Frontier and Transpaco is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding Frontier Transport Holdings and Transpaco in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Transpaco 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 Transpaco. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Transpaco has no effect on the direction of Frontier Transport i.e., Frontier Transport and Transpaco go up and down completely randomly.

Pair Corralation between Frontier Transport and Transpaco

Assuming the 90 days trading horizon Frontier Transport is expected to generate 1.74 times less return on investment than Transpaco. But when comparing it to its historical volatility, Frontier Transport Holdings is 3.65 times less risky than Transpaco. It trades about 0.08 of its potential returns per unit of risk. Transpaco is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  370,000  in Transpaco on October 14, 2024 and sell it today you would earn a total of  5,000  from holding Transpaco or generate 1.35% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	94.44%
Values	Daily Returns

Frontier Transport Holdings  vs.  Transpaco

Frontier Transport

Risk-Adjusted Performance

0 of 100

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 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.

Transpaco

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Transpaco has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Transpaco 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 Transpaco

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

The idea behind Frontier Transport Holdings and Transpaco 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.