Correlation Between Frontier Group and American Airlines
Can any of the company-specific risk be diversified away by investing in both Frontier Group and American 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 American 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 American Airlines Group, you can compare the effects of market volatilities on Frontier Group and American 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 American Airlines. Check out your portfolio center. Please also check ongoing floating volatility patterns of Frontier Group and American Airlines.
Diversification Opportunities for Frontier Group and American Airlines
0.85 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Frontier and American is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Frontier Group Holdings and American Airlines Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Airlines 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 American Airlines. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Airlines has no effect on the direction of Frontier Group i.e., Frontier Group and American Airlines go up and down completely randomly.
Pair Corralation between Frontier Group and American Airlines
Given the investment horizon of 90 days Frontier Group Holdings is expected to under-perform the American Airlines. In addition to that, Frontier Group is 1.72 times more volatile than American Airlines Group. It trades about -0.02 of its total potential returns per unit of risk. American Airlines Group is currently generating about 0.01 per unit of volatility. If you would invest 1,397 in American Airlines Group on August 23, 2024 and sell it today you would earn a total of 23.00 from holding American Airlines Group or generate 1.65% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Frontier Group Holdings vs. American Airlines Group
Performance |
| Timeline |
| Frontier Group Holdings |
| American Airlines |
Frontier Group and American Airlines Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Frontier Group and American Airlines
The main advantage of trading using opposite Frontier Group and American Airlines positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Frontier Group position performs unexpectedly, American 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 American Airlines will offset losses from the drop in American Airlines' long position.| Frontier Group vs. JetBlue Airways Corp | Frontier Group vs. Southwest Airlines | Frontier Group vs. United Airlines Holdings | Frontier Group vs. American Airlines Group |
| American Airlines vs. Delta Air Lines | American Airlines vs. Southwest Airlines | American Airlines vs. JetBlue Airways Corp | American Airlines vs. Spirit Airlines |
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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.
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