Correlation Between Southwest Airlines and Shell Plc

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

Diversification Opportunities for Southwest Airlines and Shell Plc

-0.25

Correlation Coefficient

Southwest Airlines  Shell Plc

Very good diversification

The 3 months correlation between Southwest and Shell is -0.25. Overlapping area represents the amount of risk that can be diversified away by holding Southwest Airlines Co and Shell plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shell plc 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 Shell Plc. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shell plc has no effect on the direction of Southwest Airlines i.e., Southwest Airlines and Shell Plc go up and down completely randomly.

Pair Corralation between Southwest Airlines and Shell Plc

Assuming the 90 days trading horizon Southwest Airlines is expected to generate 2.84 times less return on investment than Shell Plc. In addition to that, Southwest Airlines is 1.97 times more volatile than Shell plc. It trades about 0.03 of its total potential returns per unit of risk. Shell plc is currently generating about 0.18 per unit of volatility. If you would invest  240,868  in Shell plc on December 23, 2024 and sell it today you would earn a total of  31,832  from holding Shell plc or generate 13.22% 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.  Shell plc

Southwest Airlines

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Southwest Airlines Co are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. 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.

Shell plc

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Shell plc are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, Shell Plc unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Southwest Airlines and Shell Plc

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

The idea behind Southwest Airlines Co and Shell plc 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.