Correlation Between Southwest Airlines and Genesco

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

Diversification Opportunities for Southwest Airlines and Genesco

0.88

Correlation Coefficient

Southwest Airlines  Genesco

Very poor diversification

The 3 months correlation between Southwest and Genesco is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Southwest Airlines Co and Genesco in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Genesco 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 Genesco. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Genesco has no effect on the direction of Southwest Airlines i.e., Southwest Airlines and Genesco go up and down completely randomly.

Pair Corralation between Southwest Airlines and Genesco

Assuming the 90 days horizon Southwest Airlines is expected to generate 2.34 times less return on investment than Genesco. But when comparing it to its historical volatility, Southwest Airlines Co is 1.86 times less risky than Genesco. It trades about 0.01 of its potential returns per unit of risk. Genesco is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  4,440  in Genesco on October 24, 2024 and sell it today you would lose (580.00) from holding Genesco or give up 13.06% of portfolio value over 90 days.

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

Southwest Airlines Co  vs.  Genesco

Southwest Airlines

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Southwest Airlines Co are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, Southwest Airlines reported solid returns over the last few months and may actually be approaching a breakup point.

Genesco

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Genesco are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Genesco reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Southwest Airlines and Genesco

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

The idea behind Southwest Airlines Co and Genesco 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.