Correlation Between Charter Communications and Southwest Airlines

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

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

Diversification Opportunities for Charter Communications and Southwest Airlines

-0.12

Correlation Coefficient

Charter Communications  Southwest Airlines

Good diversification

The 3 months correlation between Charter and Southwest is -0.12. Overlapping area represents the amount of risk that can be diversified away by holding Charter Communications and Southwest Airlines Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Southwest Airlines and Charter Communications 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 Charter Communications 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 Charter Communications i.e., Charter Communications and Southwest Airlines go up and down completely randomly.

Pair Corralation between Charter Communications and Southwest Airlines

Assuming the 90 days trading horizon Charter Communications is expected to generate 0.67 times more return on investment than Southwest Airlines. However, Charter Communications is 1.5 times less risky than Southwest Airlines. It trades about 0.0 of its potential returns per unit of risk. Southwest Airlines Co is currently generating about -0.01 per unit of risk. If you would invest  33,625  in Charter Communications on December 24, 2024 and sell it today you would lose (240.00) from holding Charter Communications or give up 0.71% of portfolio value over 90 days.

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

Charter Communications  vs.  Southwest Airlines Co

Charter Communications

Risk-Adjusted Performance

Very Weak

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

Southwest Airlines

Risk-Adjusted Performance

Very Weak

Over the last 90 days Southwest Airlines Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Southwest Airlines is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Charter Communications and Southwest Airlines

The main advantage of trading using opposite Charter Communications and Southwest Airlines positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Charter Communications 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 Charter Communications 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.