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

0.84

Correlation Coefficient

Frontier Group  American Airlines

Very poor diversification

The 3 months correlation between Frontier and American is 0.84. 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 1.3 times more volatile than American Airlines Group. It trades about -0.2 of its total potential returns per unit of risk. American Airlines Group is currently generating about -0.14 per unit of volatility. If you would invest  1,670  in American Airlines Group on February 3, 2025 and sell it today you would lose (618.00) from holding American Airlines Group or give up 37.01% of portfolio value 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

Frontier Group Holdings

Risk-Adjusted Performance

Very Weak

Over the last 90 days Frontier Group Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's fundamental indicators remain rather sound which may send shares a bit higher in June 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

American Airlines

Risk-Adjusted Performance

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 conflicting performance in the last few months, the Stock's basic indicators remain quite persistent which may send shares a bit higher in June 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

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.

The idea behind Frontier Group Holdings and American Airlines Group 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.