Correlation Between Southwest Airlines and Sandstorm Gold

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

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

Diversification Opportunities for Southwest Airlines and Sandstorm Gold

0.0

Correlation Coefficient

Southwest Airlines  Sandstorm Gold

Pay attention - limited upside

The 3 months correlation between Southwest and Sandstorm is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Southwest Airlines and Sandstorm Gold Ltd in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sandstorm Gold 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 Sandstorm Gold. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sandstorm Gold has no effect on the direction of Southwest Airlines i.e., Southwest Airlines and Sandstorm Gold go up and down completely randomly.

Pair Corralation between Southwest Airlines and Sandstorm Gold

Considering the 90-day investment horizon Southwest Airlines is expected to generate 17.72 times less return on investment than Sandstorm Gold. But when comparing it to its historical volatility, Southwest Airlines is 1.18 times less risky than Sandstorm Gold. It trades about 0.02 of its potential returns per unit of risk. Sandstorm Gold Ltd is currently generating about 0.23 of returns per unit of risk over similar time horizon. If you would invest  554.00  in Sandstorm Gold Ltd on December 30, 2024 and sell it today you would earn a total of  203.00  from holding Sandstorm Gold Ltd or generate 36.64% return on investment over 90 days.

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

Southwest Airlines  vs.  Sandstorm Gold Ltd

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.

Sandstorm Gold

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Sandstorm Gold Ltd are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of rather abnormal basic indicators, Sandstorm Gold exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Southwest Airlines and Sandstorm Gold

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

The idea behind Southwest Airlines and Sandstorm Gold Ltd 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.