Correlation Between Top Frontier and Figaro Coffee

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

By analyzing existing cross correlation between Top Frontier Investment and Figaro Coffee Group, you can compare the effects of market volatilities on Top Frontier and Figaro Coffee 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 Top Frontier with a short position of Figaro Coffee. Check out your portfolio center. Please also check ongoing floating volatility patterns of Top Frontier and Figaro Coffee.

Diversification Opportunities for Top Frontier and Figaro Coffee

0.29

Correlation Coefficient

Top Frontier  Figaro Coffee

Modest diversification

The 3 months correlation between Top and Figaro is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding Top Frontier Investment and Figaro Coffee Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Figaro Coffee Group and Top 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 Top Frontier Investment are associated (or correlated) with Figaro Coffee. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Figaro Coffee Group has no effect on the direction of Top Frontier i.e., Top Frontier and Figaro Coffee go up and down completely randomly.

Pair Corralation between Top Frontier and Figaro Coffee

Assuming the 90 days trading horizon Top Frontier Investment is expected to generate 0.64 times more return on investment than Figaro Coffee. However, Top Frontier Investment is 1.56 times less risky than Figaro Coffee. It trades about -0.33 of its potential returns per unit of risk. Figaro Coffee Group is currently generating about -0.23 per unit of risk. If you would invest  6,495  in Top Frontier Investment on November 28, 2024 and sell it today you would lose (495.00) from holding Top Frontier Investment or give up 7.62% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	85.71%
Values	Daily Returns

Top Frontier Investment  vs.  Figaro Coffee Group

Top Frontier Investment

Risk-Adjusted Performance

Very Weak

Over the last 90 days Top Frontier Investment has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Figaro Coffee Group

Risk-Adjusted Performance

Very Weak

Over the last 90 days Figaro Coffee Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with Top Frontier and Figaro Coffee

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

The idea behind Top Frontier Investment and Figaro Coffee Group 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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.