Correlation Between Southwest Airlines and Lundin Mining

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

Diversification Opportunities for Southwest Airlines and Lundin Mining

-0.39

Correlation Coefficient

Southwest Airlines  Lundin Mining

Very good diversification

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

Pair Corralation between Southwest Airlines and Lundin Mining

Assuming the 90 days horizon Southwest Airlines is expected to generate 3.33 times less return on investment than Lundin Mining. But when comparing it to its historical volatility, Southwest Airlines Co is 1.27 times less risky than Lundin Mining. It trades about 0.01 of its potential returns per unit of risk. Lundin Mining is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  597.00  in Lundin Mining on September 30, 2024 and sell it today you would earn a total of  225.00  from holding Lundin Mining or generate 37.69% 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.  Lundin Mining

Southwest Airlines

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Southwest Airlines Co are ranked lower than 16 (%) 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.

Lundin Mining

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Lundin Mining has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest uncertain performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Southwest Airlines and Lundin Mining

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

The idea behind Southwest Airlines Co and Lundin Mining 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.