Correlation Between Southwest Airlines and AEON STORES

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

Diversification Opportunities for Southwest Airlines and AEON STORES

-0.01

Correlation Coefficient

Southwest Airlines  AEON STORES

Good diversification

The 3 months correlation between Southwest and AEON is -0.01. Overlapping area represents the amount of risk that can be diversified away by holding Southwest Airlines Co and AEON STORES in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AEON STORES 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 AEON STORES. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AEON STORES has no effect on the direction of Southwest Airlines i.e., Southwest Airlines and AEON STORES go up and down completely randomly.

Pair Corralation between Southwest Airlines and AEON STORES

Assuming the 90 days horizon Southwest Airlines Co is expected to generate 2.44 times more return on investment than AEON STORES. However, Southwest Airlines is 2.44 times more volatile than AEON STORES. It trades about 0.01 of its potential returns per unit of risk. AEON STORES is currently generating about -0.03 per unit of risk. If you would invest  3,143  in Southwest Airlines Co on December 23, 2024 and sell it today you would lose (2.00) from holding Southwest Airlines Co or give up 0.06% of portfolio value over 90 days.

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

Southwest Airlines Co  vs.  AEON STORES

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.

AEON STORES

Risk-Adjusted Performance

Very Weak

Over the last 90 days AEON STORES has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, AEON STORES is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Southwest Airlines and AEON STORES

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

The idea behind Southwest Airlines Co and AEON STORES 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.