Correlation Between Southwest Airlines and BLACK

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Can any of the company-specific risk be diversified away by investing in both Southwest Airlines and BLACK 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 BLACK into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Southwest Airlines and BLACK HILLS P, you can compare the effects of market volatilities on Southwest Airlines and BLACK 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 BLACK. Check out your portfolio center. Please also check ongoing floating volatility patterns of Southwest Airlines and BLACK.

Diversification Opportunities for Southwest Airlines and BLACK

-0.48
  Correlation Coefficient

Very good diversification

The 3 months correlation between Southwest and BLACK is -0.48. Overlapping area represents the amount of risk that can be diversified away by holding Southwest Airlines and BLACK HILLS P in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BLACK HILLS P 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 BLACK. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BLACK HILLS P has no effect on the direction of Southwest Airlines i.e., Southwest Airlines and BLACK go up and down completely randomly.

Pair Corralation between Southwest Airlines and BLACK

Considering the 90-day investment horizon Southwest Airlines is expected to generate 4.43 times more return on investment than BLACK. However, Southwest Airlines is 4.43 times more volatile than BLACK HILLS P. It trades about 0.11 of its potential returns per unit of risk. BLACK HILLS P is currently generating about -0.11 per unit of risk. If you would invest  3,048  in Southwest Airlines on October 9, 2024 and sell it today you would earn a total of  335.00  from holding Southwest Airlines or generate 10.99% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthVery Weak
Accuracy72.58%
ValuesDaily Returns

Southwest Airlines  vs.  BLACK HILLS P

 Performance 
       Timeline  
Southwest Airlines 

Risk-Adjusted Performance

8 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in Southwest Airlines are ranked lower than 8 (%) 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.
BLACK HILLS P 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days BLACK HILLS P has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, BLACK is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Southwest Airlines and BLACK Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Southwest Airlines and BLACK

The main advantage of trading using opposite Southwest Airlines and BLACK positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Southwest Airlines position performs unexpectedly, BLACK 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 BLACK will offset losses from the drop in BLACK's long position.
The idea behind Southwest Airlines and BLACK HILLS P 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.

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