Correlation Between National Beverage and Southwest Airlines

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

By analyzing existing cross correlation between National Beverage Corp and Southwest Airlines Co, you can compare the effects of market volatilities on National Beverage and Southwest 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 National Beverage with a short position of Southwest Airlines. Check out your portfolio center. Please also check ongoing floating volatility patterns of National Beverage and Southwest Airlines.

Diversification Opportunities for National Beverage and Southwest Airlines

0.66

Correlation Coefficient

National Beverage  Southwest Airlines

Poor diversification

The 3 months correlation between National and Southwest is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding National Beverage Corp and Southwest Airlines Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Southwest Airlines and National Beverage 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 National Beverage Corp are associated (or correlated) with Southwest Airlines. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Southwest Airlines has no effect on the direction of National Beverage i.e., National Beverage and Southwest Airlines go up and down completely randomly.

Pair Corralation between National Beverage and Southwest Airlines

Assuming the 90 days trading horizon National Beverage Corp is expected to under-perform the Southwest Airlines. But the stock apears to be less risky and, when comparing its historical volatility, National Beverage Corp is 1.0 times less risky than Southwest Airlines. The stock trades about -0.21 of its potential returns per unit of risk. The Southwest Airlines Co is currently generating about -0.05 of returns per unit of risk over similar time horizon. If you would invest  3,300  in Southwest Airlines Co on December 2, 2024 and sell it today you would lose (202.00) from holding Southwest Airlines Co or give up 6.12% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.44%
Values	Daily Returns

National Beverage Corp  vs.  Southwest Airlines Co

National Beverage Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days National Beverage Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of conflicting performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in April 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Southwest Airlines

Risk-Adjusted Performance

Very Weak

Over the last 90 days Southwest Airlines Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Southwest Airlines is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with National Beverage and Southwest Airlines

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

The idea behind National Beverage Corp and Southwest Airlines Co 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.