Correlation Between Southwest Airlines and Summit Hotel

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

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

Diversification Opportunities for Southwest Airlines and Summit Hotel

0.63

Correlation Coefficient

Southwest Airlines  Summit Hotel

Poor diversification

The 3 months correlation between Southwest and Summit is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Southwest Airlines and Summit Hotel Properties in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Summit Hotel Properties 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 Summit Hotel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Summit Hotel Properties has no effect on the direction of Southwest Airlines i.e., Southwest Airlines and Summit Hotel go up and down completely randomly.

Pair Corralation between Southwest Airlines and Summit Hotel

Considering the 90-day investment horizon Southwest Airlines is expected to generate 0.79 times more return on investment than Summit Hotel. However, Southwest Airlines is 1.27 times less risky than Summit Hotel. It trades about -0.1 of its potential returns per unit of risk. Summit Hotel Properties is currently generating about -0.1 per unit of risk. If you would invest  3,372  in Southwest Airlines on October 10, 2024 and sell it today you would lose (84.00) from holding Southwest Airlines or give up 2.49% of portfolio value over 90 days.

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

Southwest Airlines  vs.  Summit Hotel Properties

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 February 2025.

Summit Hotel Properties

Risk-Adjusted Performance

1 of 100

Weak

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

Pair Trading with Southwest Airlines and Summit Hotel

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

The idea behind Southwest Airlines and Summit Hotel Properties 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.