Correlation Between Southwest Airlines and SPORTING

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

Diversification Opportunities for Southwest Airlines and SPORTING

-0.08

Correlation Coefficient

Southwest Airlines  SPORTING

Good diversification

The 3 months correlation between Southwest and SPORTING is -0.08. Overlapping area represents the amount of risk that can be diversified away by holding Southwest Airlines Co and SPORTING in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPORTING 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 SPORTING. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPORTING has no effect on the direction of Southwest Airlines i.e., Southwest Airlines and SPORTING go up and down completely randomly.

Pair Corralation between Southwest Airlines and SPORTING

Assuming the 90 days horizon Southwest Airlines is expected to generate 32.18 times less return on investment than SPORTING. In addition to that, Southwest Airlines is 1.12 times more volatile than SPORTING. It trades about 0.0 of its total potential returns per unit of risk. SPORTING is currently generating about 0.13 per unit of volatility. If you would invest  81.00  in SPORTING on December 29, 2024 and sell it today you would earn a total of  15.00  from holding SPORTING or generate 18.52% 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.  SPORTING

Southwest Airlines

Risk-Adjusted Performance

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.

SPORTING

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in SPORTING are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady technical and fundamental indicators, SPORTING unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Southwest Airlines and SPORTING

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

The idea behind Southwest Airlines Co and SPORTING 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.