Correlation Between Southwest Airlines and Farmacias Benavides

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

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

Diversification Opportunities for Southwest Airlines and Farmacias Benavides

0.35

Correlation Coefficient

Southwest Airlines  Farmacias Benavides

Weak diversification

The 3 months correlation between Southwest and Farmacias is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding Southwest Airlines and Farmacias Benavides SAB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Farmacias Benavides SAB and Southwest Airlines 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 Southwest Airlines are associated (or correlated) with Farmacias Benavides. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Farmacias Benavides SAB has no effect on the direction of Southwest Airlines i.e., Southwest Airlines and Farmacias Benavides go up and down completely randomly.

Pair Corralation between Southwest Airlines and Farmacias Benavides

Assuming the 90 days trading horizon Southwest Airlines is expected to generate 5.34 times less return on investment than Farmacias Benavides. In addition to that, Southwest Airlines is 1.32 times more volatile than Farmacias Benavides SAB. It trades about 0.04 of its total potential returns per unit of risk. Farmacias Benavides SAB is currently generating about 0.31 per unit of volatility. If you would invest  1,949  in Farmacias Benavides SAB on October 26, 2024 and sell it today you would earn a total of  351.00  from holding Farmacias Benavides SAB or generate 18.01% return on investment over 90 days.

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

Southwest Airlines  vs.  Farmacias Benavides SAB

Southwest Airlines

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Southwest Airlines are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Southwest Airlines may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Farmacias Benavides SAB

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Farmacias Benavides SAB are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak fundamental indicators, Farmacias Benavides unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Southwest Airlines and Farmacias Benavides

The main advantage of trading using opposite Southwest Airlines and Farmacias Benavides positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Southwest Airlines position performs unexpectedly, Farmacias Benavides 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 Farmacias Benavides will offset losses from the drop in Farmacias Benavides' long position.

The idea behind Southwest Airlines and Farmacias Benavides SAB 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.