Correlation Between Southwest Airlines and Ribbon Communications

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

Diversification Opportunities for Southwest Airlines and Ribbon Communications

0.86

Correlation Coefficient

Southwest Airlines  Ribbon Communications

Very poor diversification

The 3 months correlation between Southwest and Ribbon is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Southwest Airlines Co and Ribbon Communications in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ribbon Communications 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 Ribbon Communications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ribbon Communications has no effect on the direction of Southwest Airlines i.e., Southwest Airlines and Ribbon Communications go up and down completely randomly.

Pair Corralation between Southwest Airlines and Ribbon Communications

Assuming the 90 days horizon Southwest Airlines is expected to generate 1.35 times less return on investment than Ribbon Communications. But when comparing it to its historical volatility, Southwest Airlines Co is 1.7 times less risky than Ribbon Communications. It trades about 0.01 of its potential returns per unit of risk. Ribbon Communications is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  422.00  in Ribbon Communications on October 10, 2024 and sell it today you would lose (44.00) from holding Ribbon Communications or give up 10.43% 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.  Ribbon Communications

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.

Ribbon Communications

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Ribbon Communications are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Ribbon Communications reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Southwest Airlines and Ribbon Communications

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

The idea behind Southwest Airlines Co and Ribbon Communications 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 File Import module to quickly import all of your third-party portfolios from your local drive in csv format.