Correlation Between Southwest Airlines and CHINA HUARONG

Can any of the company-specific risk be diversified away by investing in both Southwest Airlines and CHINA HUARONG 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 CHINA HUARONG 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 CHINA HUARONG ENERHD 50, you can compare the effects of market volatilities on Southwest Airlines and CHINA HUARONG 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 CHINA HUARONG. Check out your portfolio center. Please also check ongoing floating volatility patterns of Southwest Airlines and CHINA HUARONG.

Diversification Opportunities for Southwest Airlines and CHINA HUARONG

-0.46

Correlation Coefficient

Southwest Airlines  CHINA HUARONG

Very good diversification

The 3 months correlation between Southwest and CHINA is -0.46. Overlapping area represents the amount of risk that can be diversified away by holding Southwest Airlines Co and CHINA HUARONG ENERHD 50 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CHINA HUARONG ENERHD 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 CHINA HUARONG. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CHINA HUARONG ENERHD has no effect on the direction of Southwest Airlines i.e., Southwest Airlines and CHINA HUARONG go up and down completely randomly.

Pair Corralation between Southwest Airlines and CHINA HUARONG

Assuming the 90 days horizon Southwest Airlines Co is expected to generate 0.1 times more return on investment than CHINA HUARONG. However, Southwest Airlines Co is 9.61 times less risky than CHINA HUARONG. It trades about 0.23 of its potential returns per unit of risk. CHINA HUARONG ENERHD 50 is currently generating about 0.02 per unit of risk. If you would invest  2,845  in Southwest Airlines Co on October 7, 2024 and sell it today you would earn a total of  390.00  from holding Southwest Airlines Co or generate 13.71% return on investment over 90 days.

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

Southwest Airlines Co  vs.  CHINA HUARONG ENERHD 50

Southwest Airlines

Risk-Adjusted Performance

10 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Southwest Airlines Co are ranked lower than 10 (%) 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.

CHINA HUARONG ENERHD

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CHINA HUARONG ENERHD 50 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Southwest Airlines and CHINA HUARONG

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

The idea behind Southwest Airlines Co and CHINA HUARONG ENERHD 50 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.