Correlation Between Data Communications and FRNT Financial

Can any of the company-specific risk be diversified away by investing in both Data Communications and FRNT Financial 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 Data Communications and FRNT Financial into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Data Communications Management and FRNT Financial, you can compare the effects of market volatilities on Data Communications and FRNT Financial 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 Data Communications with a short position of FRNT Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Data Communications and FRNT Financial.

Diversification Opportunities for Data Communications and FRNT Financial

0.5

Correlation Coefficient

Data Communications  FRNT Financial

Very weak diversification

The 3 months correlation between Data and FRNT is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Data Communications Management and FRNT Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FRNT Financial and Data Communications 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 Data Communications Management are associated (or correlated) with FRNT Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FRNT Financial has no effect on the direction of Data Communications i.e., Data Communications and FRNT Financial go up and down completely randomly.

Pair Corralation between Data Communications and FRNT Financial

Assuming the 90 days trading horizon Data Communications is expected to generate 19.95 times less return on investment than FRNT Financial. But when comparing it to its historical volatility, Data Communications Management is 1.57 times less risky than FRNT Financial. It trades about 0.01 of its potential returns per unit of risk. FRNT Financial is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  30.00  in FRNT Financial on April 20, 2025 and sell it today you would earn a total of  16.00  from holding FRNT Financial or generate 53.33% return on investment over 90 days.

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

Data Communications Management  vs.  FRNT Financial

Data Communications

Risk-Adjusted Performance

Very Weak

Over the last 90 days Data Communications Management has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy primary indicators, Data Communications is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

FRNT Financial

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in FRNT Financial are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, FRNT Financial showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Data Communications and FRNT Financial

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

The idea behind Data Communications Management and FRNT Financial 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.