Correlation Between New Frontier and Foothills Exploration

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

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

Diversification Opportunities for New Frontier and Foothills Exploration

1.0

Correlation Coefficient

New Frontier  Foothills Exploration

No risk reduction

The 3 months correlation between New and Foothills is 1.0. Overlapping area represents the amount of risk that can be diversified away by holding New Frontier Energy and Foothills Exploration in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Foothills Exploration and New Frontier 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 New Frontier Energy are associated (or correlated) with Foothills Exploration. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Foothills Exploration has no effect on the direction of New Frontier i.e., New Frontier and Foothills Exploration go up and down completely randomly.

Pair Corralation between New Frontier and Foothills Exploration

Given the investment horizon of 90 days New Frontier Energy is expected to under-perform the Foothills Exploration. But the pink sheet apears to be less risky and, when comparing its historical volatility, New Frontier Energy is 4.12 times less risky than Foothills Exploration. The pink sheet trades about -0.05 of its potential returns per unit of risk. The Foothills Exploration is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  0.02  in Foothills Exploration on October 26, 2024 and sell it today you would lose (0.01) from holding Foothills Exploration or give up 50.0% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	99.2%
Values	Daily Returns

New Frontier Energy  vs.  Foothills Exploration

New Frontier Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days New Frontier Energy has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong technical and fundamental indicators, New Frontier is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

Foothills Exploration

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Foothills Exploration has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, Foothills Exploration is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with New Frontier and Foothills Exploration

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

The idea behind New Frontier Energy and Foothills Exploration 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.