Correlation Between Southwest Airlines and Evolent Health

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

Diversification Opportunities for Southwest Airlines and Evolent Health

-0.94

Correlation Coefficient

Southwest Airlines  Evolent Health

Pay attention - limited upside

The 3 months correlation between Southwest and Evolent is -0.94. Overlapping area represents the amount of risk that can be diversified away by holding Southwest Airlines Co and Evolent Health in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Evolent Health 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 Evolent Health. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Evolent Health has no effect on the direction of Southwest Airlines i.e., Southwest Airlines and Evolent Health go up and down completely randomly.

Pair Corralation between Southwest Airlines and Evolent Health

Assuming the 90 days horizon Southwest Airlines Co is expected to generate 0.24 times more return on investment than Evolent Health. However, Southwest Airlines Co is 4.22 times less risky than Evolent Health. It trades about 0.22 of its potential returns per unit of risk. Evolent Health is currently generating about -0.19 per unit of risk. If you would invest  2,724  in Southwest Airlines Co on September 26, 2024 and sell it today you would earn a total of  456.00  from holding Southwest Airlines Co or generate 16.74% return on investment over 90 days.

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

Southwest Airlines Co  vs.  Evolent Health

Southwest Airlines

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Southwest Airlines Co are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Southwest Airlines reported solid returns over the last few months and may actually be approaching a breakup point.

Evolent Health

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Evolent Health has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Southwest Airlines and Evolent Health

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

The idea behind Southwest Airlines Co and Evolent Health 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..