Correlation Between Southwest Airlines and Associated British

Can any of the company-specific risk be diversified away by investing in both Southwest Airlines and Associated British 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 Associated British 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 Associated British Foods, you can compare the effects of market volatilities on Southwest Airlines and Associated British 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 Associated British. Check out your portfolio center. Please also check ongoing floating volatility patterns of Southwest Airlines and Associated British.

Diversification Opportunities for Southwest Airlines and Associated British

-0.32

Correlation Coefficient

Southwest Airlines  Associated British

Very good diversification

The 3 months correlation between Southwest and Associated is -0.32. Overlapping area represents the amount of risk that can be diversified away by holding Southwest Airlines Co and Associated British Foods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Associated British Foods 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 Associated British. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Associated British Foods has no effect on the direction of Southwest Airlines i.e., Southwest Airlines and Associated British go up and down completely randomly.

Pair Corralation between Southwest Airlines and Associated British

Assuming the 90 days trading horizon Southwest Airlines Co is expected to generate 1.73 times more return on investment than Associated British. However, Southwest Airlines is 1.73 times more volatile than Associated British Foods. It trades about 0.07 of its potential returns per unit of risk. Associated British Foods is currently generating about -0.08 per unit of risk. If you would invest  2,728  in Southwest Airlines Co on September 1, 2024 and sell it today you would earn a total of  524.00  from holding Southwest Airlines Co or generate 19.21% return on investment over 90 days.

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

Southwest Airlines Co  vs.  Associated British Foods

Southwest Airlines

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Southwest Airlines Co are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Southwest Airlines unveiled solid returns over the last few months and may actually be approaching a breakup point.

Associated British Foods

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Associated British Foods has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with Southwest Airlines and Associated British

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

The idea behind Southwest Airlines Co and Associated British Foods 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.

Check out your portfolio center.

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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.