Correlation Between Southwest Airlines and PLAYMATES TOYS

Can any of the company-specific risk be diversified away by investing in both Southwest Airlines and PLAYMATES TOYS 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 PLAYMATES TOYS 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 PLAYMATES TOYS, you can compare the effects of market volatilities on Southwest Airlines and PLAYMATES TOYS 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 PLAYMATES TOYS. Check out your portfolio center. Please also check ongoing floating volatility patterns of Southwest Airlines and PLAYMATES TOYS.

Diversification Opportunities for Southwest Airlines and PLAYMATES TOYS

0.65

Correlation Coefficient

Southwest Airlines  PLAYMATES TOYS

Poor diversification

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

Pair Corralation between Southwest Airlines and PLAYMATES TOYS

Assuming the 90 days horizon Southwest Airlines is expected to generate 2.45 times less return on investment than PLAYMATES TOYS. But when comparing it to its historical volatility, Southwest Airlines Co is 1.76 times less risky than PLAYMATES TOYS. It trades about 0.01 of its potential returns per unit of risk. PLAYMATES TOYS is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  6.90  in PLAYMATES TOYS on December 23, 2024 and sell it today you would lose (0.10) from holding PLAYMATES TOYS or give up 1.45% of portfolio value over 90 days.

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

Southwest Airlines Co  vs.  PLAYMATES TOYS

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 newest stock price disturbance, may contribute to mid-run losses for the stockholders.

PLAYMATES TOYS

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in PLAYMATES TOYS are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, PLAYMATES TOYS is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Southwest Airlines and PLAYMATES TOYS

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

The idea behind Southwest Airlines Co and PLAYMATES TOYS 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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..