Correlation Between SOUTHWEST AIRLINES and MITSUBISHI STEEL

Can any of the company-specific risk be diversified away by investing in both SOUTHWEST AIRLINES and MITSUBISHI STEEL 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 MITSUBISHI STEEL into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between SOUTHWEST AIRLINES and MITSUBISHI STEEL MFG, you can compare the effects of market volatilities on SOUTHWEST AIRLINES and MITSUBISHI STEEL 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 MITSUBISHI STEEL. Check out your portfolio center. Please also check ongoing floating volatility patterns of SOUTHWEST AIRLINES and MITSUBISHI STEEL.

Diversification Opportunities for SOUTHWEST AIRLINES and MITSUBISHI STEEL

-0.16

Correlation Coefficient

SOUTHWEST AIRLINES  MITSUBISHI STEEL

Good diversification

The 3 months correlation between SOUTHWEST and MITSUBISHI is -0.16. Overlapping area represents the amount of risk that can be diversified away by holding SOUTHWEST AIRLINES and MITSUBISHI STEEL MFG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MITSUBISHI STEEL MFG 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 are associated (or correlated) with MITSUBISHI STEEL. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MITSUBISHI STEEL MFG has no effect on the direction of SOUTHWEST AIRLINES i.e., SOUTHWEST AIRLINES and MITSUBISHI STEEL go up and down completely randomly.

Pair Corralation between SOUTHWEST AIRLINES and MITSUBISHI STEEL

Assuming the 90 days trading horizon SOUTHWEST AIRLINES is expected to generate 8.29 times less return on investment than MITSUBISHI STEEL. But when comparing it to its historical volatility, SOUTHWEST AIRLINES is 1.03 times less risky than MITSUBISHI STEEL. It trades about 0.0 of its potential returns per unit of risk. MITSUBISHI STEEL MFG is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  699.00  in MITSUBISHI STEEL MFG on September 4, 2024 and sell it today you would earn a total of  166.00  from holding MITSUBISHI STEEL MFG or generate 23.75% return on investment over 90 days.

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

SOUTHWEST AIRLINES  vs.  MITSUBISHI STEEL MFG

SOUTHWEST AIRLINES

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in SOUTHWEST AIRLINES are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, SOUTHWEST AIRLINES unveiled solid returns over the last few months and may actually be approaching a breakup point.

MITSUBISHI STEEL MFG

Risk-Adjusted Performance

2 of 100

Weak

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

Pair Trading with SOUTHWEST AIRLINES and MITSUBISHI STEEL

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

The idea behind SOUTHWEST AIRLINES and MITSUBISHI STEEL MFG 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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.