Correlation Between Southwest Airlines and Hexcel

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

Diversification Opportunities for Southwest Airlines and Hexcel

0.46

Correlation Coefficient

Southwest Airlines  Hexcel

Very weak diversification

The 3 months correlation between Southwest and Hexcel is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding Southwest Airlines Co and Hexcel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hexcel 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 Hexcel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hexcel has no effect on the direction of Southwest Airlines i.e., Southwest Airlines and Hexcel go up and down completely randomly.

Pair Corralation between Southwest Airlines and Hexcel

Assuming the 90 days horizon Southwest Airlines Co is expected to generate 1.09 times more return on investment than Hexcel. However, Southwest Airlines is 1.09 times more volatile than Hexcel. It trades about 0.23 of its potential returns per unit of risk. Hexcel is currently generating about 0.1 per unit of risk. If you would invest  2,845  in Southwest Airlines Co on October 7, 2024 and sell it today you would earn a total of  390.00  from holding Southwest Airlines Co or generate 13.71% return on investment over 90 days.

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

Southwest Airlines Co  vs.  Hexcel

Southwest Airlines

Risk-Adjusted Performance

10 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Southwest Airlines Co are ranked lower than 10 (%) 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.

Hexcel

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Hexcel are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Hexcel may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Southwest Airlines and Hexcel

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

The idea behind Southwest Airlines Co and Hexcel 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 Portfolio Anywhere module to track or share privately all of your investments from the convenience of any device.