Correlation Between UET United and Southwest Airlines

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

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

Diversification Opportunities for UET United and Southwest Airlines

0.36

Correlation Coefficient

UET United  Southwest Airlines

Weak diversification

The 3 months correlation between UET and Southwest is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding UET United Electronic and Southwest Airlines Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Southwest Airlines and UET United 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 UET United Electronic 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 UET United i.e., UET United and Southwest Airlines go up and down completely randomly.

Pair Corralation between UET United and Southwest Airlines

Assuming the 90 days trading horizon UET United Electronic is expected to under-perform the Southwest Airlines. In addition to that, UET United is 2.61 times more volatile than Southwest Airlines Co. It trades about -0.02 of its total potential returns per unit of risk. Southwest Airlines Co is currently generating about 0.21 per unit of volatility. If you would invest  2,624  in Southwest Airlines Co on September 30, 2024 and sell it today you would earn a total of  640.00  from holding Southwest Airlines Co or generate 24.39% return on investment over 90 days.

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

UET United Electronic  vs.  Southwest Airlines Co

UET United Electronic

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days UET United Electronic has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable fundamental indicators, UET United is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

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 fragile basic indicators, Southwest Airlines reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with UET United and Southwest Airlines

The main advantage of trading using opposite UET United and Southwest Airlines positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if UET United 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 UET United Electronic 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.