Correlation Between United Airlines and Frontier Group

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

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

Diversification Opportunities for United Airlines and Frontier Group

0.76

Correlation Coefficient

United Airlines  Frontier Group

Poor diversification

The 3 months correlation between United and Frontier is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding United Airlines Holdings and Frontier Group Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Frontier Group Holdings and United Airlines 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 United Airlines Holdings are associated (or correlated) with Frontier Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Frontier Group Holdings has no effect on the direction of United Airlines i.e., United Airlines and Frontier Group go up and down completely randomly.

Pair Corralation between United Airlines and Frontier Group

Considering the 90-day investment horizon United Airlines Holdings is expected to generate 0.52 times more return on investment than Frontier Group. However, United Airlines Holdings is 1.91 times less risky than Frontier Group. It trades about 0.31 of its potential returns per unit of risk. Frontier Group Holdings is currently generating about -0.05 per unit of risk. If you would invest  8,042  in United Airlines Holdings on August 31, 2024 and sell it today you would earn a total of  1,593  from holding United Airlines Holdings or generate 19.81% return on investment over 90 days.

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

United Airlines Holdings  vs.  Frontier Group Holdings

United Airlines Holdings

Risk-Adjusted Performance

36 of 100

Very Strong

Compared to the overall equity markets, risk-adjusted returns on investments in United Airlines Holdings are ranked lower than 36 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting basic indicators, United Airlines disclosed solid returns over the last few months and may actually be approaching a breakup point.

Frontier Group Holdings

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Frontier Group Holdings are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain fundamental indicators, Frontier Group exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with United Airlines and Frontier Group

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

The idea behind United Airlines Holdings and Frontier Group Holdings 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.