Correlation Between American Airlines and Frontier Group

Can any of the company-specific risk be diversified away by investing in both American Airlines and Frontier Group 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 American Airlines and Frontier Group into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between American Airlines Group and Frontier Group Holdings, you can compare the effects of market volatilities on American Airlines and Frontier Group 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 American Airlines with a short position of Frontier Group. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Airlines and Frontier Group.

Diversification Opportunities for American Airlines and Frontier Group

0.22

Correlation Coefficient

American Airlines  Frontier Group

Modest diversification

The 3 months correlation between American and Frontier is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding American Airlines Group and Frontier Group Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Frontier Group Holdings and American Airlines 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 American Airlines Group are associated (or correlated) with Frontier Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Frontier Group Holdings has no effect on the direction of American Airlines i.e., American Airlines and Frontier Group go up and down completely randomly.

Pair Corralation between American Airlines and Frontier Group

Considering the 90-day investment horizon American Airlines Group is expected to under-perform the Frontier Group. But the stock apears to be less risky and, when comparing its historical volatility, American Airlines Group is 2.28 times less risky than Frontier Group. The stock trades about 0.0 of its potential returns per unit of risk. The Frontier Group Holdings is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  487.00  in Frontier Group Holdings on January 31, 2024 and sell it today you would earn a total of  134.00  from holding Frontier Group Holdings or generate 27.52% return on investment over 90 days.

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

American Airlines Group  vs.  Frontier Group Holdings

American Airlines

Risk-Adjusted Performance

0 of 100

Very Weak

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

Frontier Group Holdings

Risk-Adjusted Performance

7 of 100

OK

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.

Pair Trading with American Airlines and Frontier Group

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

The idea behind American Airlines Group and Frontier Group 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.

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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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.