Correlation Between Southwest Airlines and Hilton Food

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

Diversification Opportunities for Southwest Airlines and Hilton Food

0.32

Correlation Coefficient

Southwest Airlines  Hilton Food

Weak diversification

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

Pair Corralation between Southwest Airlines and Hilton Food

Assuming the 90 days trading horizon Southwest Airlines Co is expected to generate 1.58 times more return on investment than Hilton Food. However, Southwest Airlines is 1.58 times more volatile than Hilton Food Group. It trades about 0.07 of its potential returns per unit of risk. Hilton Food Group is currently generating about 0.02 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 Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Southwest Airlines Co  vs.  Hilton Food Group

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.

Hilton Food Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Hilton Food Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Hilton Food is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Southwest Airlines and Hilton Food

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

The idea behind Southwest Airlines Co and Hilton Food Group 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.