Correlation Between Southwest Airlines and MPH Health

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

Diversification Opportunities for Southwest Airlines and MPH Health

-0.39

Correlation Coefficient

Southwest Airlines  MPH Health

Very good diversification

The 3 months correlation between Southwest and MPH is -0.39. Overlapping area represents the amount of risk that can be diversified away by holding Southwest Airlines Co and MPH Health Care in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MPH Health Care 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 MPH Health. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MPH Health Care has no effect on the direction of Southwest Airlines i.e., Southwest Airlines and MPH Health go up and down completely randomly.

Pair Corralation between Southwest Airlines and MPH Health

Assuming the 90 days horizon Southwest Airlines Co is expected to generate 0.48 times more return on investment than MPH Health. However, Southwest Airlines Co is 2.09 times less risky than MPH Health. It trades about 0.13 of its potential returns per unit of risk. MPH Health Care is currently generating about -0.03 per unit of risk. If you would invest  3,164  in Southwest Airlines Co on October 11, 2024 and sell it today you would earn a total of  70.00  from holding Southwest Airlines Co or generate 2.21% return on investment over 90 days.

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

Southwest Airlines Co  vs.  MPH Health Care

Southwest Airlines

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Southwest Airlines Co are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Southwest Airlines reported solid returns over the last few months and may actually be approaching a breakup point.

MPH Health Care

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days MPH Health Care has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, MPH Health is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Southwest Airlines and MPH Health

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

The idea behind Southwest Airlines Co and MPH Health Care 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.