Correlation Between Copa Holdings and Southwest Airlines

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

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

Diversification Opportunities for Copa Holdings and Southwest Airlines

-0.33

Correlation Coefficient

Copa Holdings  Southwest Airlines

Very good diversification

The 3 months correlation between Copa and Southwest is -0.33. Overlapping area represents the amount of risk that can be diversified away by holding Copa Holdings SA and Southwest Airlines in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Southwest Airlines and Copa Holdings 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 Copa Holdings SA 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 Copa Holdings i.e., Copa Holdings and Southwest Airlines go up and down completely randomly.

Pair Corralation between Copa Holdings and Southwest Airlines

Considering the 90-day investment horizon Copa Holdings SA is expected to generate 0.88 times more return on investment than Southwest Airlines. However, Copa Holdings SA is 1.13 times less risky than Southwest Airlines. It trades about 0.09 of its potential returns per unit of risk. Southwest Airlines is currently generating about 0.02 per unit of risk. If you would invest  8,590  in Copa Holdings SA on December 28, 2024 and sell it today you would earn a total of  826.00  from holding Copa Holdings SA or generate 9.62% return on investment over 90 days.

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

Copa Holdings SA  vs.  Southwest Airlines

Copa Holdings SA

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Copa Holdings SA are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat abnormal basic indicators, Copa Holdings may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Southwest Airlines

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Southwest Airlines are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Southwest Airlines is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Copa Holdings and Southwest Airlines

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

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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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.