Correlation Between Southwest Airlines and Teradata Corp

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

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

Diversification Opportunities for Southwest Airlines and Teradata Corp

0.11

Correlation Coefficient

Southwest Airlines  Teradata Corp

Average diversification

The 3 months correlation between Southwest and Teradata is 0.11. Overlapping area represents the amount of risk that can be diversified away by holding Southwest Airlines Co and Teradata Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Teradata Corp and Southwest 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 Southwest Airlines Co are associated (or correlated) with Teradata Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Teradata Corp has no effect on the direction of Southwest Airlines i.e., Southwest Airlines and Teradata Corp go up and down completely randomly.

Pair Corralation between Southwest Airlines and Teradata Corp

Assuming the 90 days trading horizon Southwest Airlines Co is expected to generate 0.86 times more return on investment than Teradata Corp. However, Southwest Airlines Co is 1.17 times less risky than Teradata Corp. It trades about 0.08 of its potential returns per unit of risk. Teradata Corp is currently generating about -0.02 per unit of risk. If you would invest  2,727  in Southwest Airlines Co on October 7, 2024 and sell it today you would earn a total of  567.00  from holding Southwest Airlines Co or generate 20.79% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	95.31%
Values	Daily Returns

Southwest Airlines Co  vs.  Teradata Corp

Southwest Airlines

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Southwest Airlines Co are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, Southwest Airlines may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Teradata Corp

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Teradata Corp are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Teradata Corp 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 Southwest Airlines and Teradata Corp

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

The idea behind Southwest Airlines Co and Teradata Corp 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.