Correlation Between Southwest Airlines and NORWEGIAN AIR

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

Diversification Opportunities for Southwest Airlines and NORWEGIAN AIR

-0.29

Correlation Coefficient

Southwest Airlines  NORWEGIAN AIR

Very good diversification

The 3 months correlation between Southwest and NORWEGIAN is -0.29. Overlapping area represents the amount of risk that can be diversified away by holding Southwest Airlines Co and NORWEGIAN AIR SHUT in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NORWEGIAN AIR SHUT 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 NORWEGIAN AIR. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NORWEGIAN AIR SHUT has no effect on the direction of Southwest Airlines i.e., Southwest Airlines and NORWEGIAN AIR go up and down completely randomly.

Pair Corralation between Southwest Airlines and NORWEGIAN AIR

Assuming the 90 days horizon Southwest Airlines Co is expected to generate 0.64 times more return on investment than NORWEGIAN AIR. However, Southwest Airlines Co is 1.57 times less risky than NORWEGIAN AIR. It trades about 0.15 of its potential returns per unit of risk. NORWEGIAN AIR SHUT is currently generating about 0.01 per unit of risk. If you would invest  2,649  in Southwest Airlines Co on September 5, 2024 and sell it today you would earn a total of  488.00  from holding Southwest Airlines Co or generate 18.42% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.46%
Values	Daily Returns

Southwest Airlines Co  vs.  NORWEGIAN AIR SHUT

Southwest Airlines

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Southwest Airlines Co are ranked lower than 11 (%) 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.

NORWEGIAN AIR SHUT

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days NORWEGIAN AIR SHUT has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, NORWEGIAN AIR is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Southwest Airlines and NORWEGIAN AIR

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

The idea behind Southwest Airlines Co and NORWEGIAN AIR SHUT 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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.