Correlation Between Southwest Airlines and Grupo Financiero

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

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

Diversification Opportunities for Southwest Airlines and Grupo Financiero

-0.48

Correlation Coefficient

Southwest Airlines  Grupo Financiero

Very good diversification

The 3 months correlation between Southwest and Grupo is -0.48. Overlapping area represents the amount of risk that can be diversified away by holding Southwest Airlines and Grupo Financiero Banorte in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Grupo Financiero Banorte 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 Grupo Financiero. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Grupo Financiero Banorte has no effect on the direction of Southwest Airlines i.e., Southwest Airlines and Grupo Financiero go up and down completely randomly.

Pair Corralation between Southwest Airlines and Grupo Financiero

Assuming the 90 days trading horizon Southwest Airlines is expected to generate 1.05 times less return on investment than Grupo Financiero. In addition to that, Southwest Airlines is 1.2 times more volatile than Grupo Financiero Banorte. It trades about 0.02 of its total potential returns per unit of risk. Grupo Financiero Banorte is currently generating about 0.03 per unit of volatility. If you would invest  12,463  in Grupo Financiero Banorte on December 2, 2024 and sell it today you would earn a total of  2,021  from holding Grupo Financiero Banorte or generate 16.22% return on investment over 90 days.

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

Southwest Airlines  vs.  Grupo Financiero Banorte

Southwest Airlines

Risk-Adjusted Performance

Very Weak

Over the last 90 days Southwest Airlines has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Southwest Airlines is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Grupo Financiero Banorte

Risk-Adjusted Performance

Modest

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

Pair Trading with Southwest Airlines and Grupo Financiero

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

The idea behind Southwest Airlines and Grupo Financiero Banorte 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.