Correlation Between Southwest Airlines and AGNC Investment

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

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

Diversification Opportunities for Southwest Airlines and AGNC Investment

-0.46

Correlation Coefficient

Southwest Airlines  AGNC Investment

Very good diversification

The 3 months correlation between Southwest and AGNC is -0.46. Overlapping area represents the amount of risk that can be diversified away by holding Southwest Airlines and AGNC Investment Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AGNC Investment Corp 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 AGNC Investment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AGNC Investment Corp has no effect on the direction of Southwest Airlines i.e., Southwest Airlines and AGNC Investment go up and down completely randomly.

Pair Corralation between Southwest Airlines and AGNC Investment

Considering the 90-day investment horizon Southwest Airlines is expected to generate 0.93 times more return on investment than AGNC Investment. However, Southwest Airlines is 1.07 times less risky than AGNC Investment. It trades about -0.01 of its potential returns per unit of risk. AGNC Investment Corp is currently generating about -0.05 per unit of risk. If you would invest  3,372  in Southwest Airlines on October 8, 2024 and sell it today you would lose (11.00) from holding Southwest Airlines or give up 0.33% of portfolio value over 90 days.

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

Southwest Airlines  vs.  AGNC Investment Corp

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 conflicting basic indicators, Southwest Airlines may actually be approaching a critical reversion point that can send shares even higher in February 2025.

AGNC Investment Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days AGNC Investment Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, AGNC Investment is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Southwest Airlines and AGNC Investment

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

The idea behind Southwest Airlines and AGNC Investment Corp 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.