Correlation Between Frax and Frax Share
Can any of the company-specific risk be diversified away by investing in both Frax and Frax Share 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 Frax and Frax Share into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Frax and Frax Share, you can compare the effects of market volatilities on Frax and Frax Share 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 Frax with a short position of Frax Share. Check out your portfolio center. Please also check ongoing floating volatility patterns of Frax and Frax Share.
Diversification Opportunities for Frax and Frax Share
-0.1 | Correlation Coefficient |
Good diversification
The 3 months correlation between Frax and Frax is -0.1. Overlapping area represents the amount of risk that can be diversified away by holding Frax and Frax Share in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Frax Share and Frax 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 Frax are associated (or correlated) with Frax Share. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Frax Share has no effect on the direction of Frax i.e., Frax and Frax Share go up and down completely randomly.
Pair Corralation between Frax and Frax Share
Assuming the 90 days trading horizon Frax is expected to generate 1.13 times more return on investment than Frax Share. However, Frax is 1.13 times more volatile than Frax Share. It trades about 0.03 of its potential returns per unit of risk. Frax Share is currently generating about -0.02 per unit of risk. If you would invest 99.00 in Frax on August 27, 2024 and sell it today you would earn a total of 5.00 from holding Frax or generate 5.05% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 98.33% |
| Values | Daily Returns |
Frax vs. Frax Share
Performance |
| Timeline |
| Frax |
| Frax Share |
Frax and Frax Share Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Frax and Frax Share
The main advantage of trading using opposite Frax and Frax Share positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Frax position performs unexpectedly, Frax Share 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 Frax Share will offset losses from the drop in Frax Share's long position.The idea behind Frax and Frax Share 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.
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