Correlation Between Frontier Transport and Trencor

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

Diversification Opportunities for Frontier Transport and Trencor

-0.16

Correlation Coefficient

Frontier Transport  Trencor

Good diversification

The 3 months correlation between Frontier and Trencor is -0.16. Overlapping area represents the amount of risk that can be diversified away by holding Frontier Transport Holdings and Trencor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Trencor 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 Trencor. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Trencor has no effect on the direction of Frontier Transport i.e., Frontier Transport and Trencor go up and down completely randomly.

Pair Corralation between Frontier Transport and Trencor

Assuming the 90 days trading horizon Frontier Transport Holdings is expected to generate 1.91 times more return on investment than Trencor. However, Frontier Transport is 1.91 times more volatile than Trencor. It trades about 0.07 of its potential returns per unit of risk. Trencor is currently generating about 0.05 per unit of risk. If you would invest  31,519  in Frontier Transport Holdings on October 7, 2024 and sell it today you would earn a total of  45,381  from holding Frontier Transport Holdings or generate 143.98% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.8%
Values	Daily Returns

Frontier Transport Holdings  vs.  Trencor

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 latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Trencor

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Trencor are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, Trencor may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Frontier Transport and Trencor

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

The idea behind Frontier Transport Holdings and Trencor 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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.