Correlation Between American Public and Southwest Airlines

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

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

Diversification Opportunities for American Public and Southwest Airlines

0.93

Correlation Coefficient

American Public  Southwest Airlines

Almost no diversification

The 3 months correlation between American and Southwest is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding American Public Education and Southwest Airlines Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Southwest Airlines and American Public 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 American Public Education 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 American Public i.e., American Public and Southwest Airlines go up and down completely randomly.

Pair Corralation between American Public and Southwest Airlines

Assuming the 90 days horizon American Public is expected to generate 1.27 times less return on investment than Southwest Airlines. In addition to that, American Public is 1.66 times more volatile than Southwest Airlines Co. It trades about 0.13 of its total potential returns per unit of risk. Southwest Airlines Co is currently generating about 0.27 per unit of volatility. If you would invest  3,050  in Southwest Airlines Co on October 1, 2024 and sell it today you would earn a total of  214.00  from holding Southwest Airlines Co or generate 7.02% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	100.0%
Values	Daily Returns

American Public Education  vs.  Southwest Airlines Co

American Public Education

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in American Public Education are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, American Public reported solid returns over the last few months and may actually be approaching a breakup point.

Southwest Airlines

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Southwest Airlines Co are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Southwest Airlines reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with American Public and Southwest Airlines

The main advantage of trading using opposite American Public and Southwest Airlines positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Public 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 American Public Education 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.