Correlation Between SOUTHWEST AIRLINES and Gaming

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

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

Diversification Opportunities for SOUTHWEST AIRLINES and Gaming

0.18

Correlation Coefficient

SOUTHWEST AIRLINES  Gaming

Average diversification

The 3 months correlation between SOUTHWEST and Gaming is 0.18. Overlapping area represents the amount of risk that can be diversified away by holding SOUTHWEST AIRLINES and Gaming and Leisure in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gaming and Leisure 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 Gaming. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gaming and Leisure has no effect on the direction of SOUTHWEST AIRLINES i.e., SOUTHWEST AIRLINES and Gaming go up and down completely randomly.

Pair Corralation between SOUTHWEST AIRLINES and Gaming

Assuming the 90 days trading horizon SOUTHWEST AIRLINES is expected to generate 1.48 times less return on investment than Gaming. In addition to that, SOUTHWEST AIRLINES is 1.76 times more volatile than Gaming and Leisure. It trades about 0.01 of its total potential returns per unit of risk. Gaming and Leisure is currently generating about 0.01 per unit of volatility. If you would invest  4,387  in Gaming and Leisure on October 26, 2024 and sell it today you would earn a total of  214.00  from holding Gaming and Leisure or generate 4.88% return on investment over 90 days.

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

SOUTHWEST AIRLINES  vs.  Gaming and Leisure

SOUTHWEST AIRLINES

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in SOUTHWEST AIRLINES are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, SOUTHWEST AIRLINES may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Gaming and Leisure

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Gaming and Leisure are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Gaming 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 Gaming

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

The idea behind SOUTHWEST AIRLINES and Gaming and Leisure 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.