Correlation Between Southwest Airlines and El Al

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

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

Diversification Opportunities for Southwest Airlines and El Al

-0.47

Correlation Coefficient

Southwest Airlines  El Al

Very good diversification

The 3 months correlation between Southwest and ELALF is -0.47. Overlapping area represents the amount of risk that can be diversified away by holding Southwest Airlines and El Al Israel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on El Al Israel 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 El Al. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of El Al Israel has no effect on the direction of Southwest Airlines i.e., Southwest Airlines and El Al go up and down completely randomly.

Pair Corralation between Southwest Airlines and El Al

Considering the 90-day investment horizon Southwest Airlines is expected to generate 13.55 times less return on investment than El Al. But when comparing it to its historical volatility, Southwest Airlines is 1.34 times less risky than El Al. It trades about 0.02 of its potential returns per unit of risk. El Al Israel is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  225.00  in El Al Israel on December 21, 2024 and sell it today you would earn a total of  75.00  from holding El Al Israel or generate 33.33% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	95.24%
Values	Daily Returns

Southwest Airlines  vs.  El Al Israel

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.

El Al Israel

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in El Al Israel are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite nearly conflicting essential indicators, El Al reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Southwest Airlines and El Al

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

The idea behind Southwest Airlines and El Al Israel 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 CEOs Directory module to screen CEOs from public companies around the world.