Correlation Between Southwest Airlines and Grupo Mexicano

Can any of the company-specific risk be diversified away by investing in both Southwest Airlines and Grupo Mexicano 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 Mexicano 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 Mexicano de, you can compare the effects of market volatilities on Southwest Airlines and Grupo Mexicano 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 Mexicano. Check out your portfolio center. Please also check ongoing floating volatility patterns of Southwest Airlines and Grupo Mexicano.

Diversification Opportunities for Southwest Airlines and Grupo Mexicano

0.3

Correlation Coefficient

Southwest Airlines  Grupo Mexicano

Weak diversification

The 3 months correlation between Southwest and Grupo is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding Southwest Airlines and Grupo Mexicano de in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Grupo Mexicano de 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 Mexicano. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Grupo Mexicano de has no effect on the direction of Southwest Airlines i.e., Southwest Airlines and Grupo Mexicano go up and down completely randomly.

Pair Corralation between Southwest Airlines and Grupo Mexicano

Assuming the 90 days trading horizon Southwest Airlines is expected to generate 5.29 times more return on investment than Grupo Mexicano. However, Southwest Airlines is 5.29 times more volatile than Grupo Mexicano de. It trades about 0.05 of its potential returns per unit of risk. Grupo Mexicano de is currently generating about -0.17 per unit of risk. If you would invest  65,749  in Southwest Airlines on December 23, 2024 and sell it today you would earn a total of  3,951  from holding Southwest Airlines or generate 6.01% return on investment over 90 days.

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

Southwest Airlines  vs.  Grupo Mexicano de

Southwest Airlines

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Southwest Airlines are ranked lower than 4 (%) 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 April 2025.

Grupo Mexicano de

Risk-Adjusted Performance

Very Weak

Over the last 90 days Grupo Mexicano de has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong fundamental indicators, Grupo Mexicano 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 Grupo Mexicano

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

The idea behind Southwest Airlines and Grupo Mexicano de 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.