Correlation Between Plains All and Frontline

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

By analyzing existing cross correlation between Plains All American and Frontline, you can compare the effects of market volatilities on Plains All and Frontline 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 Plains All with a short position of Frontline. Check out your portfolio center. Please also check ongoing floating volatility patterns of Plains All and Frontline.

Diversification Opportunities for Plains All and Frontline

0.69

Correlation Coefficient

Plains All  Frontline

Poor diversification

The 3 months correlation between Plains and Frontline is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Plains All American and Frontline in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Frontline and Plains All 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 Plains All American are associated (or correlated) with Frontline. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Frontline has no effect on the direction of Plains All i.e., Plains All and Frontline go up and down completely randomly.

Pair Corralation between Plains All and Frontline

Considering the 90-day investment horizon Plains All American is expected to generate 0.46 times more return on investment than Frontline. However, Plains All American is 2.18 times less risky than Frontline. It trades about 0.2 of its potential returns per unit of risk. Frontline is currently generating about 0.06 per unit of risk. If you would invest  1,652  in Plains All American on December 29, 2024 and sell it today you would earn a total of  357.00  from holding Plains All American or generate 21.61% return on investment over 90 days.

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

Plains All American  vs.  Frontline

Plains All American

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Plains All American are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain basic indicators, Plains All sustained solid returns over the last few months and may actually be approaching a breakup point.

Frontline

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Frontline are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of very conflicting basic indicators, Frontline displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Plains All and Frontline

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

The idea behind Plains All American and Frontline 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 Top Crypto Exchanges module to search and analyze digital assets across top global cryptocurrency exchanges.