Correlation Between Frontier Group and HUTCHMED DRC

Can any of the company-specific risk be diversified away by investing in both Frontier Group and HUTCHMED DRC 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 HUTCHMED DRC 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 HUTCHMED DRC, you can compare the effects of market volatilities on Frontier Group and HUTCHMED DRC 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 HUTCHMED DRC. Check out your portfolio center. Please also check ongoing floating volatility patterns of Frontier Group and HUTCHMED DRC.

Diversification Opportunities for Frontier Group and HUTCHMED DRC

-0.63

Correlation Coefficient

Frontier Group  HUTCHMED DRC

Excellent diversification

The 3 months correlation between Frontier and HUTCHMED is -0.63. Overlapping area represents the amount of risk that can be diversified away by holding Frontier Group Holdings and HUTCHMED DRC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HUTCHMED DRC 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 HUTCHMED DRC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HUTCHMED DRC has no effect on the direction of Frontier Group i.e., Frontier Group and HUTCHMED DRC go up and down completely randomly.

Pair Corralation between Frontier Group and HUTCHMED DRC

Given the investment horizon of 90 days Frontier Group Holdings is expected to under-perform the HUTCHMED DRC. In addition to that, Frontier Group is 1.3 times more volatile than HUTCHMED DRC. It trades about -0.07 of its total potential returns per unit of risk. HUTCHMED DRC is currently generating about 0.04 per unit of volatility. If you would invest  1,425  in HUTCHMED DRC on December 22, 2024 and sell it today you would earn a total of  74.00  from holding HUTCHMED DRC or generate 5.19% return on investment over 90 days.

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

Frontier Group Holdings  vs.  HUTCHMED DRC

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.

HUTCHMED DRC

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in HUTCHMED DRC are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of very weak fundamental indicators, HUTCHMED DRC may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Frontier Group and HUTCHMED DRC

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

The idea behind Frontier Group Holdings and HUTCHMED DRC 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.