Correlation Between Southwest Airlines and Himalaya Shipping

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

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

Diversification Opportunities for Southwest Airlines and Himalaya Shipping

-0.37

Correlation Coefficient

Southwest Airlines  Himalaya Shipping

Very good diversification

The 3 months correlation between Southwest and Himalaya is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding Southwest Airlines and Himalaya Shipping in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Himalaya Shipping 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 Himalaya Shipping. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Himalaya Shipping has no effect on the direction of Southwest Airlines i.e., Southwest Airlines and Himalaya Shipping go up and down completely randomly.

Pair Corralation between Southwest Airlines and Himalaya Shipping

Considering the 90-day investment horizon Southwest Airlines is expected to generate 0.76 times more return on investment than Himalaya Shipping. However, Southwest Airlines is 1.31 times less risky than Himalaya Shipping. It trades about 0.09 of its potential returns per unit of risk. Himalaya Shipping is currently generating about -0.08 per unit of risk. If you would invest  2,940  in Southwest Airlines on September 3, 2024 and sell it today you would earn a total of  296.00  from holding Southwest Airlines or generate 10.07% return on investment over 90 days.

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

Southwest Airlines  vs.  Himalaya Shipping

Southwest Airlines

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Southwest Airlines are ranked lower than 7 (%) 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 January 2025.

Himalaya Shipping

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Himalaya Shipping has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest weak performance, the Stock's technical indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail investors.

Pair Trading with Southwest Airlines and Himalaya Shipping

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

The idea behind Southwest Airlines and Himalaya Shipping 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.