Correlation Between Rover and Frontdoor

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

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

Diversification Opportunities for Rover and Frontdoor

0.85

Correlation Coefficient

Rover  Frontdoor

Very poor diversification

The 3 months correlation between Rover and Frontdoor is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Rover Group and Frontdoor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Frontdoor and Rover 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 Rover Group are associated (or correlated) with Frontdoor. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Frontdoor has no effect on the direction of Rover i.e., Rover and Frontdoor go up and down completely randomly.

Pair Corralation between Rover and Frontdoor

If you would invest  5,429  in Frontdoor on September 19, 2024 and sell it today you would earn a total of  143.00  from holding Frontdoor or generate 2.63% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	4.55%
Values	Daily Returns

Rover Group  vs.  Frontdoor

Rover Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Rover Group has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, Rover is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Frontdoor

Risk-Adjusted Performance

8 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Frontdoor are ranked lower than 8 (%) 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.

Pair Trading with Rover and Frontdoor

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

The idea behind Rover Group and Frontdoor 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.