Correlation Between A1LK34 and Southwest Airlines

Can any of the company-specific risk be diversified away by investing in both A1LK34 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 A1LK34 and Southwest Airlines into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between A1LK34 and Southwest Airlines Co, you can compare the effects of market volatilities on A1LK34 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 A1LK34 with a short position of Southwest Airlines. Check out your portfolio center. Please also check ongoing floating volatility patterns of A1LK34 and Southwest Airlines.

Diversification Opportunities for A1LK34 and Southwest Airlines

0.32

Correlation Coefficient

A1LK34  Southwest Airlines

Weak diversification

The 3 months correlation between A1LK34 and Southwest is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding A1LK34 and Southwest Airlines Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Southwest Airlines and A1LK34 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 A1LK34 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 A1LK34 i.e., A1LK34 and Southwest Airlines go up and down completely randomly.

Pair Corralation between A1LK34 and Southwest Airlines

Assuming the 90 days trading horizon A1LK34 is expected to generate 1.43 times more return on investment than Southwest Airlines. However, A1LK34 is 1.43 times more volatile than Southwest Airlines Co. It trades about 0.12 of its potential returns per unit of risk. Southwest Airlines Co is currently generating about 0.05 per unit of risk. If you would invest  17,748  in A1LK34 on September 28, 2024 and sell it today you would earn a total of  23,700  from holding A1LK34 or generate 133.54% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	81.72%
Values	Daily Returns

A1LK34  vs.  Southwest Airlines Co

A1LK34

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in A1LK34 are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak essential indicators, A1LK34 sustained solid returns over the last few months and may actually be approaching a breakup point.

Southwest Airlines

Risk-Adjusted Performance

0 of 100

Modest

Over the last 90 days Southwest Airlines Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat weak basic indicators, Southwest Airlines may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with A1LK34 and Southwest Airlines

The main advantage of trading using opposite A1LK34 and Southwest Airlines positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if A1LK34 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 A1LK34 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.

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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..