Correlation Between SPORT LISBOA and Southwest Airlines

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

By analyzing existing cross correlation between SPORT LISBOA E and Southwest Airlines Co, you can compare the effects of market volatilities on SPORT LISBOA and Southwest Airlines 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 SPORT LISBOA with a short position of Southwest Airlines. Check out your portfolio center. Please also check ongoing floating volatility patterns of SPORT LISBOA and Southwest Airlines.

Diversification Opportunities for SPORT LISBOA and Southwest Airlines

0.18

Correlation Coefficient

SPORT LISBOA  Southwest Airlines

Average diversification

The 3 months correlation between SPORT and Southwest is 0.18. Overlapping area represents the amount of risk that can be diversified away by holding SPORT LISBOA E and Southwest Airlines Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Southwest Airlines and SPORT LISBOA 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 SPORT LISBOA E are associated (or correlated) with Southwest Airlines. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Southwest Airlines has no effect on the direction of SPORT LISBOA i.e., SPORT LISBOA and Southwest Airlines go up and down completely randomly.

Pair Corralation between SPORT LISBOA and Southwest Airlines

Assuming the 90 days horizon SPORT LISBOA E is expected to under-perform the Southwest Airlines. In addition to that, SPORT LISBOA is 3.15 times more volatile than Southwest Airlines Co. It trades about -0.05 of its total potential returns per unit of risk. Southwest Airlines Co is currently generating about 0.01 per unit of volatility. If you would invest  2,919  in Southwest Airlines Co on December 4, 2024 and sell it today you would earn a total of  6.00  from holding Southwest Airlines Co or generate 0.21% return on investment over 90 days.

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

SPORT LISBOA E  vs.  Southwest Airlines Co

SPORT LISBOA E

Risk-Adjusted Performance

Very Weak

Over the last 90 days SPORT LISBOA E has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, SPORT LISBOA is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Southwest Airlines

Risk-Adjusted Performance

Very Weak

Over the last 90 days Southwest Airlines Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Southwest Airlines is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with SPORT LISBOA and Southwest Airlines

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

The idea behind SPORT LISBOA E and Southwest Airlines Co 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.