Correlation Between Frontier Group and United Airlines

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

Diversification Opportunities for Frontier Group and United Airlines

0.73

Correlation Coefficient

Frontier Group  United Airlines

Poor diversification

The 3 months correlation between Frontier and United is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Frontier Group Holdings and United Airlines Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on United Airlines Holdings 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 United Airlines. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of United Airlines Holdings has no effect on the direction of Frontier Group i.e., Frontier Group and United Airlines go up and down completely randomly.

Pair Corralation between Frontier Group and United Airlines

Given the investment horizon of 90 days Frontier Group Holdings is expected to generate 1.86 times more return on investment than United Airlines. However, Frontier Group is 1.86 times more volatile than United Airlines Holdings. It trades about 0.09 of its potential returns per unit of risk. United Airlines Holdings is currently generating about 0.01 per unit of risk. If you would invest  580.00  in Frontier Group Holdings on December 3, 2024 and sell it today you would earn a total of  133.00  from holding Frontier Group Holdings or generate 22.93% return on investment over 90 days.

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

Frontier Group Holdings  vs.  United Airlines Holdings

Frontier Group Holdings

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Frontier Group Holdings are ranked lower than 7 (%) 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.

United Airlines Holdings

Risk-Adjusted Performance

Very Weak

Over the last 90 days United Airlines Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, United Airlines is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Frontier Group and United Airlines

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

The idea behind Frontier Group Holdings and United Airlines 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.

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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.