Correlation Between Frontier Group and Guangdong Investment

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

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

Diversification Opportunities for Frontier Group and Guangdong Investment

0.39

Correlation Coefficient

Frontier Group  Guangdong Investment

Weak diversification

The 3 months correlation between Frontier and Guangdong is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding Frontier Group Holdings and Guangdong Investment Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Guangdong Investment and Frontier Group 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 Group Holdings are associated (or correlated) with Guangdong Investment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Guangdong Investment has no effect on the direction of Frontier Group i.e., Frontier Group and Guangdong Investment go up and down completely randomly.

Pair Corralation between Frontier Group and Guangdong Investment

Given the investment horizon of 90 days Frontier Group Holdings is expected to under-perform the Guangdong Investment. In addition to that, Frontier Group is 2.52 times more volatile than Guangdong Investment Limited. It trades about -0.07 of its total potential returns per unit of risk. Guangdong Investment Limited is currently generating about 0.0 per unit of volatility. If you would invest  79.00  in Guangdong Investment Limited on December 22, 2024 and sell it today you would lose (1.00) from holding Guangdong Investment Limited or give up 1.27% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	96.72%
Values	Daily Returns

Frontier Group Holdings  vs.  Guangdong Investment Limited

Frontier Group Holdings

Risk-Adjusted Performance

Very Weak

Over the last 90 days Frontier Group Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's fundamental indicators remain rather sound which may send shares a bit higher in April 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Guangdong Investment

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Frontier Group and Guangdong Investment

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

The idea behind Frontier Group Holdings and Guangdong Investment Limited 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.

Check out your portfolio center.

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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.