Correlation Between Alfa Financial and SOUTHWEST AIRLINES

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

By analyzing existing cross correlation between Alfa Financial Software and SOUTHWEST AIRLINES, you can compare the effects of market volatilities on Alfa Financial 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 Alfa Financial with a short position of SOUTHWEST AIRLINES. Check out your portfolio center. Please also check ongoing floating volatility patterns of Alfa Financial and SOUTHWEST AIRLINES.

Diversification Opportunities for Alfa Financial and SOUTHWEST AIRLINES

0.68

Correlation Coefficient

Alfa Financial  SOUTHWEST AIRLINES

Poor diversification

The 3 months correlation between Alfa and SOUTHWEST is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Alfa Financial Software and SOUTHWEST AIRLINES in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SOUTHWEST AIRLINES and Alfa Financial 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 Alfa Financial Software 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 Alfa Financial i.e., Alfa Financial and SOUTHWEST AIRLINES go up and down completely randomly.

Pair Corralation between Alfa Financial and SOUTHWEST AIRLINES

Assuming the 90 days trading horizon Alfa Financial is expected to generate 1.84 times less return on investment than SOUTHWEST AIRLINES. In addition to that, Alfa Financial is 1.17 times more volatile than SOUTHWEST AIRLINES. It trades about 0.07 of its total potential returns per unit of risk. SOUTHWEST AIRLINES is currently generating about 0.16 per unit of volatility. If you would invest  2,799  in SOUTHWEST AIRLINES on October 5, 2024 and sell it today you would earn a total of  460.00  from holding SOUTHWEST AIRLINES or generate 16.43% return on investment over 90 days.

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

Alfa Financial Software  vs.  SOUTHWEST AIRLINES

Alfa Financial Software

Risk-Adjusted Performance

0 of 100

Modest

Over the last 90 days Alfa Financial Software has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively uncertain basic indicators, Alfa Financial may actually be approaching a critical reversion point that can send shares even higher in February 2025.

SOUTHWEST AIRLINES

Risk-Adjusted Performance

0 of 100

Good

Over the last 90 days SOUTHWEST AIRLINES has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

Pair Trading with Alfa Financial and SOUTHWEST AIRLINES

The main advantage of trading using opposite Alfa Financial and SOUTHWEST AIRLINES positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Alfa Financial 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's long position.

The idea behind Alfa Financial Software and SOUTHWEST AIRLINES 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.