Correlation Between Southwest Airlines and Afentra PLC

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

Diversification Opportunities for Southwest Airlines and Afentra PLC

0.38

Correlation Coefficient

Southwest Airlines  Afentra PLC

Weak diversification

The 3 months correlation between Southwest and Afentra is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding Southwest Airlines Co and Afentra PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Afentra PLC 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 Afentra PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Afentra PLC has no effect on the direction of Southwest Airlines i.e., Southwest Airlines and Afentra PLC go up and down completely randomly.

Pair Corralation between Southwest Airlines and Afentra PLC

Assuming the 90 days horizon Southwest Airlines Co is expected to generate 0.72 times more return on investment than Afentra PLC. However, Southwest Airlines Co is 1.39 times less risky than Afentra PLC. It trades about -0.01 of its potential returns per unit of risk. Afentra PLC is currently generating about -0.03 per unit of risk. If you would invest  3,215  in Southwest Airlines Co on December 31, 2024 and sell it today you would lose (86.00) from holding Southwest Airlines Co or give up 2.67% of portfolio value over 90 days.

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

Southwest Airlines Co  vs.  Afentra PLC

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.

Afentra PLC

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Southwest Airlines and Afentra PLC

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

The idea behind Southwest Airlines Co and Afentra PLC 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 Transaction History module to view history of all your transactions and understand their impact on performance.