Correlation Between SOUTHWEST AIRLINES and KAUFMAN ET

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

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

Diversification Opportunities for SOUTHWEST AIRLINES and KAUFMAN ET

-0.27

Correlation Coefficient

SOUTHWEST AIRLINES  KAUFMAN ET

Very good diversification

The 3 months correlation between SOUTHWEST and KAUFMAN is -0.27. Overlapping area represents the amount of risk that can be diversified away by holding SOUTHWEST AIRLINES and KAUFMAN ET BROAD in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KAUFMAN ET BROAD 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 KAUFMAN ET. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of KAUFMAN ET BROAD has no effect on the direction of SOUTHWEST AIRLINES i.e., SOUTHWEST AIRLINES and KAUFMAN ET go up and down completely randomly.

Pair Corralation between SOUTHWEST AIRLINES and KAUFMAN ET

Assuming the 90 days trading horizon SOUTHWEST AIRLINES is expected to generate 1.07 times more return on investment than KAUFMAN ET. However, SOUTHWEST AIRLINES is 1.07 times more volatile than KAUFMAN ET BROAD. It trades about 0.17 of its potential returns per unit of risk. KAUFMAN ET BROAD is currently generating about -0.01 per unit of risk. If you would invest  2,553  in SOUTHWEST AIRLINES on September 16, 2024 and sell it today you would earn a total of  584.00  from holding SOUTHWEST AIRLINES or generate 22.88% 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.  KAUFMAN ET BROAD

SOUTHWEST AIRLINES

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in SOUTHWEST AIRLINES are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, SOUTHWEST AIRLINES unveiled solid returns over the last few months and may actually be approaching a breakup point.

KAUFMAN ET BROAD

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days KAUFMAN ET BROAD has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical indicators, KAUFMAN ET is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with SOUTHWEST AIRLINES and KAUFMAN ET

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

The idea behind SOUTHWEST AIRLINES and KAUFMAN ET BROAD 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.

Check out your portfolio center.

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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.