Correlation Between Southwest Airlines and Qantas Airways

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

Diversification Opportunities for Southwest Airlines and Qantas Airways

-0.09

Correlation Coefficient

Southwest Airlines  Qantas Airways

Good diversification

The 3 months correlation between Southwest and Qantas is -0.09. Overlapping area represents the amount of risk that can be diversified away by holding Southwest Airlines Co and Qantas Airways Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Qantas Airways 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 Qantas Airways. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Qantas Airways has no effect on the direction of Southwest Airlines i.e., Southwest Airlines and Qantas Airways go up and down completely randomly.

Pair Corralation between Southwest Airlines and Qantas Airways

Assuming the 90 days horizon Southwest Airlines Co is expected to under-perform the Qantas Airways. But the stock apears to be less risky and, when comparing its historical volatility, Southwest Airlines Co is 1.0 times less risky than Qantas Airways. The stock trades about -0.01 of its potential returns per unit of risk. The Qantas Airways Limited is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  523.00  in Qantas Airways Limited on December 30, 2024 and sell it today you would earn a total of  12.00  from holding Qantas Airways Limited or generate 2.29% 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.  Qantas Airways Limited

Southwest Airlines

Risk-Adjusted Performance

Very Weak

Over the last 90 days Southwest Airlines Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Southwest Airlines is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Qantas Airways

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Qantas Airways Limited are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Qantas Airways is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Southwest Airlines and Qantas Airways

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

The idea behind Southwest Airlines Co and Qantas Airways Limited 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 Financial Widgets module to easily integrated Macroaxis content with over 30 different plug-and-play financial widgets.