Correlation Between Southwest Airlines and Ashtead Technology

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

Diversification Opportunities for Southwest Airlines and Ashtead Technology

-0.48

Correlation Coefficient

Southwest Airlines  Ashtead Technology

Very good diversification

The 3 months correlation between Southwest and Ashtead is -0.48. Overlapping area represents the amount of risk that can be diversified away by holding Southwest Airlines Co and Ashtead Technology Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ashtead Technology 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 Ashtead Technology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ashtead Technology has no effect on the direction of Southwest Airlines i.e., Southwest Airlines and Ashtead Technology go up and down completely randomly.

Pair Corralation between Southwest Airlines and Ashtead Technology

Assuming the 90 days trading horizon Southwest Airlines is expected to generate 5.93 times less return on investment than Ashtead Technology. But when comparing it to its historical volatility, Southwest Airlines Co is 1.16 times less risky than Ashtead Technology. It trades about 0.01 of its potential returns per unit of risk. Ashtead Technology Holdings is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  31,324  in Ashtead Technology Holdings on September 28, 2024 and sell it today you would earn a total of  22,676  from holding Ashtead Technology Holdings or generate 72.39% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	99.2%
Values	Daily Returns

Southwest Airlines Co  vs.  Ashtead Technology Holdings

Southwest Airlines

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Southwest Airlines Co are ranked lower than 10 (%) 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.

Ashtead Technology

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Ashtead Technology Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Ashtead Technology is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Southwest Airlines and Ashtead Technology

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

The idea behind Southwest Airlines Co and Ashtead Technology Holdings 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.