Correlation Between DATATEC and Southwest Airlines

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

By analyzing existing cross correlation between DATATEC LTD 2 and Southwest Airlines Co, you can compare the effects of market volatilities on DATATEC 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 DATATEC with a short position of Southwest Airlines. Check out your portfolio center. Please also check ongoing floating volatility patterns of DATATEC and Southwest Airlines.

Diversification Opportunities for DATATEC and Southwest Airlines

0.85

Correlation Coefficient

DATATEC  Southwest Airlines

Very poor diversification

The 3 months correlation between DATATEC and Southwest is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding DATATEC LTD 2 and Southwest Airlines Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Southwest Airlines and DATATEC 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 DATATEC LTD 2 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 DATATEC i.e., DATATEC and Southwest Airlines go up and down completely randomly.

Pair Corralation between DATATEC and Southwest Airlines

Assuming the 90 days trading horizon DATATEC LTD 2 is expected to generate 2.54 times more return on investment than Southwest Airlines. However, DATATEC is 2.54 times more volatile than Southwest Airlines Co. It trades about 0.11 of its potential returns per unit of risk. Southwest Airlines Co is currently generating about -0.07 per unit of risk. If you would invest  452.00  in DATATEC LTD 2 on October 22, 2024 and sell it today you would earn a total of  22.00  from holding DATATEC LTD 2 or generate 4.87% return on investment over 90 days.

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

DATATEC LTD 2  vs.  Southwest Airlines Co

DATATEC LTD 2

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in DATATEC LTD 2 are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, DATATEC reported solid returns over the last few months and may actually be approaching a breakup point.

Southwest Airlines

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Southwest Airlines Co are ranked lower than 9 (%) 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 DATATEC and Southwest Airlines

The main advantage of trading using opposite DATATEC and Southwest Airlines positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if DATATEC 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 DATATEC LTD 2 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.