Correlation Between Southwest Airlines and GENERAL

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

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

Diversification Opportunities for Southwest Airlines and GENERAL

0.65

Correlation Coefficient

Southwest Airlines  GENERAL

Poor diversification

The 3 months correlation between Southwest and GENERAL is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Southwest Airlines and GENERAL ELEC CAP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GENERAL ELEC CAP 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 GENERAL. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GENERAL ELEC CAP has no effect on the direction of Southwest Airlines i.e., Southwest Airlines and GENERAL go up and down completely randomly.

Pair Corralation between Southwest Airlines and GENERAL

Considering the 90-day investment horizon Southwest Airlines is expected to generate 3.23 times more return on investment than GENERAL. However, Southwest Airlines is 3.23 times more volatile than GENERAL ELEC CAP. It trades about 0.07 of its potential returns per unit of risk. GENERAL ELEC CAP is currently generating about -0.02 per unit of risk. If you would invest  3,014  in Southwest Airlines on October 26, 2024 and sell it today you would earn a total of  184.50  from holding Southwest Airlines or generate 6.12% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	41.67%
Values	Daily Returns

Southwest Airlines  vs.  GENERAL ELEC CAP

Southwest Airlines

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Southwest Airlines are ranked lower than 5 (%) 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.

GENERAL ELEC CAP

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Southwest Airlines and GENERAL

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

The idea behind Southwest Airlines and GENERAL ELEC CAP 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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.