Correlation Between Frontier Communications and GMO Internet

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

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

Diversification Opportunities for Frontier Communications and GMO Internet

-0.23

Correlation Coefficient

Frontier Communications  GMO Internet

Very good diversification

The 3 months correlation between Frontier and GMO is -0.23. Overlapping area represents the amount of risk that can be diversified away by holding Frontier Communications Parent and GMO Internet in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GMO Internet and Frontier Communications 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 Communications Parent are associated (or correlated) with GMO Internet. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GMO Internet has no effect on the direction of Frontier Communications i.e., Frontier Communications and GMO Internet go up and down completely randomly.

Pair Corralation between Frontier Communications and GMO Internet

Given the investment horizon of 90 days Frontier Communications Parent is expected to generate 0.18 times more return on investment than GMO Internet. However, Frontier Communications Parent is 5.7 times less risky than GMO Internet. It trades about 0.28 of its potential returns per unit of risk. GMO Internet is currently generating about -0.16 per unit of risk. If you would invest  3,459  in Frontier Communications Parent on October 10, 2024 and sell it today you would earn a total of  58.00  from holding Frontier Communications Parent or generate 1.68% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.24%
Values	Daily Returns

Frontier Communications Parent  vs.  GMO Internet

Frontier Communications

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Frontier Communications Parent has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable fundamental drivers, Frontier Communications is not utilizing all of its potentials. The recent stock price agitation, may contribute to short-term losses for the retail investors.

GMO Internet

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days GMO Internet has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, GMO Internet is not utilizing all of its potentials. The recent stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Frontier Communications and GMO Internet

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

The idea behind Frontier Communications Parent and GMO Internet 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.