Correlation Between Southwest Airlines and Fiserv

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

By analyzing existing cross correlation between Southwest Airlines and Fiserv Inc, you can compare the effects of market volatilities on Southwest Airlines and Fiserv 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 Fiserv. Check out your portfolio center. Please also check ongoing floating volatility patterns of Southwest Airlines and Fiserv.

Diversification Opportunities for Southwest Airlines and Fiserv

0.51

Correlation Coefficient

Southwest Airlines  Fiserv

Very weak diversification

The 3 months correlation between Southwest and Fiserv is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding Southwest Airlines and Fiserv Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fiserv Inc 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 Fiserv. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fiserv Inc has no effect on the direction of Southwest Airlines i.e., Southwest Airlines and Fiserv go up and down completely randomly.

Pair Corralation between Southwest Airlines and Fiserv

Assuming the 90 days trading horizon Southwest Airlines is expected to generate 3.39 times more return on investment than Fiserv. However, Southwest Airlines is 3.39 times more volatile than Fiserv Inc. It trades about 0.1 of its potential returns per unit of risk. Fiserv Inc is currently generating about 0.18 per unit of risk. If you would invest  65,182  in Southwest Airlines on October 20, 2024 and sell it today you would earn a total of  1,717  from holding Southwest Airlines or generate 2.63% return on investment over 90 days.

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

Southwest Airlines  vs.  Fiserv Inc

Southwest Airlines

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Southwest Airlines are ranked lower than 8 (%) 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.

Fiserv Inc

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Fiserv Inc are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, Fiserv is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Southwest Airlines and Fiserv

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

The idea behind Southwest Airlines and Fiserv Inc 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.