Correlation Between Southwest Airlines and Casio Computer

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

Diversification Opportunities for Southwest Airlines and Casio Computer

-0.07

Correlation Coefficient

Southwest Airlines  Casio Computer

Good diversification

The 3 months correlation between Southwest and Casio is -0.07. Overlapping area represents the amount of risk that can be diversified away by holding Southwest Airlines Co and Casio Computer CoLtd in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Casio Computer CoLtd 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 Casio Computer. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Casio Computer CoLtd has no effect on the direction of Southwest Airlines i.e., Southwest Airlines and Casio Computer go up and down completely randomly.

Pair Corralation between Southwest Airlines and Casio Computer

Assuming the 90 days horizon Southwest Airlines Co is expected to generate 2.13 times more return on investment than Casio Computer. However, Southwest Airlines is 2.13 times more volatile than Casio Computer CoLtd. It trades about 0.01 of its potential returns per unit of risk. Casio Computer CoLtd is currently generating about -0.04 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.  Casio Computer CoLtd

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.

Casio Computer CoLtd

Risk-Adjusted Performance

Very Weak

Over the last 90 days Casio Computer CoLtd has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable fundamental indicators, Casio Computer is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Southwest Airlines and Casio Computer

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

The idea behind Southwest Airlines Co and Casio Computer CoLtd 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.