Correlation Between Frontdoor and American International

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Can any of the company-specific risk be diversified away by investing in both Frontdoor and American International 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 Frontdoor and American International into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Frontdoor and American International Holdings, you can compare the effects of market volatilities on Frontdoor and American International 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 Frontdoor with a short position of American International. Check out your portfolio center. Please also check ongoing floating volatility patterns of Frontdoor and American International.

Diversification Opportunities for Frontdoor and American International

0.23
  Correlation Coefficient

Modest diversification

The 3 months correlation between Frontdoor and American is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding Frontdoor and American International Holding in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American International and Frontdoor 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 Frontdoor are associated (or correlated) with American International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American International has no effect on the direction of Frontdoor i.e., Frontdoor and American International go up and down completely randomly.

Pair Corralation between Frontdoor and American International

Given the investment horizon of 90 days Frontdoor is expected to generate 91.96 times less return on investment than American International. But when comparing it to its historical volatility, Frontdoor is 79.14 times less risky than American International. It trades about 0.14 of its potential returns per unit of risk. American International Holdings is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  0.13  in American International Holdings on August 25, 2024 and sell it today you would lose (0.12) from holding American International Holdings or give up 92.31% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Weak
Accuracy80.07%
ValuesDaily Returns

Frontdoor  vs.  American International Holding

 Performance 
       Timeline  
Frontdoor 

Risk-Adjusted Performance

13 of 100

 
Weak
 
Strong
Good
Compared to the overall equity markets, risk-adjusted returns on investments in Frontdoor are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Even with relatively unfluctuating fundamental indicators, Frontdoor reported solid returns over the last few months and may actually be approaching a breakup point.
American International 

Risk-Adjusted Performance

12 of 100

 
Weak
 
Strong
Good
Compared to the overall equity markets, risk-adjusted returns on investments in American International Holdings are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite fairly fragile forward indicators, American International demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Frontdoor and American International Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Frontdoor and American International

The main advantage of trading using opposite Frontdoor and American International positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Frontdoor position performs unexpectedly, American International 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 American International will offset losses from the drop in American International's long position.
The idea behind Frontdoor and American International 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.

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