Correlation Between Southwest Airlines and Aimfinity Investment

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

Diversification Opportunities for Southwest Airlines and Aimfinity Investment

0.68

Correlation Coefficient

Southwest Airlines  Aimfinity Investment

Poor diversification

The 3 months correlation between Southwest and Aimfinity is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Southwest Airlines and Aimfinity Investment I in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aimfinity Investment 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 Aimfinity Investment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aimfinity Investment has no effect on the direction of Southwest Airlines i.e., Southwest Airlines and Aimfinity Investment go up and down completely randomly.

Pair Corralation between Southwest Airlines and Aimfinity Investment

Considering the 90-day investment horizon Southwest Airlines is expected to generate 7.51 times less return on investment than Aimfinity Investment. But when comparing it to its historical volatility, Southwest Airlines is 1.67 times less risky than Aimfinity Investment. It trades about 0.02 of its potential returns per unit of risk. Aimfinity Investment I is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  1,210  in Aimfinity Investment I on December 30, 2024 and sell it today you would earn a total of  137.00  from holding Aimfinity Investment I or generate 11.32% return on investment over 90 days.

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

Southwest Airlines  vs.  Aimfinity Investment I

Southwest Airlines

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Southwest Airlines are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Southwest Airlines is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Aimfinity Investment

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Aimfinity Investment I are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unfluctuating basic indicators, Aimfinity Investment unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Southwest Airlines and Aimfinity Investment

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

The idea behind Southwest Airlines and Aimfinity Investment I 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.