Correlation Between Southwest Airlines and First Solar

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

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

Diversification Opportunities for Southwest Airlines and First Solar

-0.62

Correlation Coefficient

Southwest Airlines  First Solar

Excellent diversification

The 3 months correlation between Southwest and First is -0.62. Overlapping area represents the amount of risk that can be diversified away by holding Southwest Airlines and First Solar in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Solar 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 First Solar. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Solar has no effect on the direction of Southwest Airlines i.e., Southwest Airlines and First Solar go up and down completely randomly.

Pair Corralation between Southwest Airlines and First Solar

Assuming the 90 days trading horizon Southwest Airlines is expected to generate 0.63 times more return on investment than First Solar. However, Southwest Airlines is 1.59 times less risky than First Solar. It trades about 0.12 of its potential returns per unit of risk. First Solar is currently generating about -0.04 per unit of risk. If you would invest  59,689  in Southwest Airlines on September 12, 2024 and sell it today you would earn a total of  8,611  from holding Southwest Airlines or generate 14.43% return on investment over 90 days.

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

Southwest Airlines  vs.  First Solar

Southwest Airlines

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Southwest Airlines are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Southwest Airlines showed solid returns over the last few months and may actually be approaching a breakup point.

First Solar

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days First Solar has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Southwest Airlines and First Solar

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

The idea behind Southwest Airlines and First Solar 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.