Correlation Between Southwest Airlines and Twilio

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

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

Diversification Opportunities for Southwest Airlines and Twilio

0.32

Correlation Coefficient

Southwest Airlines  Twilio

Weak diversification

The 3 months correlation between Southwest and Twilio is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding Southwest Airlines Co and Twilio Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Twilio Inc 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 Co are associated (or correlated) with Twilio. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Twilio Inc has no effect on the direction of Southwest Airlines i.e., Southwest Airlines and Twilio go up and down completely randomly.

Pair Corralation between Southwest Airlines and Twilio

If you would invest  2,456  in Twilio Inc on September 25, 2024 and sell it today you would earn a total of  264.00  from holding Twilio Inc or generate 10.75% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	86.36%
Values	Daily Returns

Southwest Airlines Co  vs.  Twilio Inc

Southwest Airlines

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Southwest Airlines Co are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Southwest Airlines may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Twilio Inc

Risk-Adjusted Performance

31 of 100

Very Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Twilio Inc are ranked lower than 31 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Twilio sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Southwest Airlines and Twilio

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

The idea behind Southwest Airlines Co and Twilio Inc 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.