Correlation Between Walmart and Southwest Airlines

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

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

Diversification Opportunities for Walmart and Southwest Airlines

0.42

Correlation Coefficient

Walmart  Southwest Airlines

Very weak diversification

The 3 months correlation between Walmart and Southwest is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding Walmart and Southwest Airlines Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Southwest Airlines and Walmart 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 Walmart are associated (or correlated) with Southwest Airlines. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Southwest Airlines has no effect on the direction of Walmart i.e., Walmart and Southwest Airlines go up and down completely randomly.

Pair Corralation between Walmart and Southwest Airlines

Assuming the 90 days trading horizon Walmart is expected to generate 0.06 times more return on investment than Southwest Airlines. However, Walmart is 17.09 times less risky than Southwest Airlines. It trades about 0.23 of its potential returns per unit of risk. Southwest Airlines Co is currently generating about -0.11 per unit of risk. If you would invest  5,939  in Walmart on October 10, 2024 and sell it today you would earn a total of  21.00  from holding Walmart or generate 0.35% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	90.48%
Values	Daily Returns

Walmart  vs.  Southwest Airlines Co

Walmart

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Walmart are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Walmart is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

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.

Pair Trading with Walmart and Southwest Airlines

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

The idea behind Walmart and Southwest Airlines Co 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.