Correlation Between Martin Marietta and SOUTHWEST AIRLINES

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

By analyzing existing cross correlation between Martin Marietta Materials and SOUTHWEST AIRLINES, you can compare the effects of market volatilities on Martin Marietta 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 Martin Marietta with a short position of SOUTHWEST AIRLINES. Check out your portfolio center. Please also check ongoing floating volatility patterns of Martin Marietta and SOUTHWEST AIRLINES.

Diversification Opportunities for Martin Marietta and SOUTHWEST AIRLINES

0.78

Correlation Coefficient

Martin Marietta  SOUTHWEST AIRLINES

Poor diversification

The 3 months correlation between Martin and SOUTHWEST is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Martin Marietta Materials and SOUTHWEST AIRLINES in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SOUTHWEST AIRLINES and Martin Marietta 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 Martin Marietta Materials 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 Martin Marietta i.e., Martin Marietta and SOUTHWEST AIRLINES go up and down completely randomly.

Pair Corralation between Martin Marietta and SOUTHWEST AIRLINES

Assuming the 90 days trading horizon Martin Marietta is expected to generate 1.22 times less return on investment than SOUTHWEST AIRLINES. But when comparing it to its historical volatility, Martin Marietta Materials is 1.54 times less risky than SOUTHWEST AIRLINES. It trades about 0.08 of its potential returns per unit of risk. SOUTHWEST AIRLINES is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  2,227  in SOUTHWEST AIRLINES on September 17, 2024 and sell it today you would earn a total of  910.00  from holding SOUTHWEST AIRLINES or generate 40.86% return on investment over 90 days.

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

Martin Marietta Materials  vs.  SOUTHWEST AIRLINES

Martin Marietta Materials

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Martin Marietta Materials are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Martin Marietta may actually be approaching a critical reversion point that can send shares even higher in January 2025.

SOUTHWEST AIRLINES

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in SOUTHWEST AIRLINES are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, SOUTHWEST AIRLINES unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Martin Marietta and SOUTHWEST AIRLINES

The main advantage of trading using opposite Martin Marietta and SOUTHWEST AIRLINES positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Martin Marietta 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's long position.

The idea behind Martin Marietta Materials and SOUTHWEST AIRLINES 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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.