Correlation Between Virgin Group and Southwest Airlines

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

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

Diversification Opportunities for Virgin Group and Southwest Airlines

0.45

Correlation Coefficient

Virgin Group  Southwest Airlines

Very weak diversification

The 3 months correlation between Virgin and Southwest is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding Virgin Group Acquisition and Southwest Airlines in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Southwest Airlines and Virgin Group 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 Virgin Group Acquisition 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 Virgin Group i.e., Virgin Group and Southwest Airlines go up and down completely randomly.

Pair Corralation between Virgin Group and Southwest Airlines

Given the investment horizon of 90 days Virgin Group Acquisition is expected to generate 2.51 times more return on investment than Southwest Airlines. However, Virgin Group is 2.51 times more volatile than Southwest Airlines. It trades about 0.14 of its potential returns per unit of risk. Southwest Airlines is currently generating about 0.08 per unit of risk. If you would invest  129.00  in Virgin Group Acquisition on October 11, 2024 and sell it today you would earn a total of  47.00  from holding Virgin Group Acquisition or generate 36.43% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.39%
Values	Daily Returns

Virgin Group Acquisition  vs.  Southwest Airlines

Virgin Group Acquisition

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Virgin Group Acquisition are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Virgin Group showed solid returns over the last few months and may actually be approaching a breakup point.

Southwest Airlines

Risk-Adjusted Performance

6 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Southwest Airlines are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly conflicting basic indicators, Southwest Airlines may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Virgin Group and Southwest Airlines

The main advantage of trading using opposite Virgin Group and Southwest Airlines positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Virgin Group 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 Virgin Group Acquisition 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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.