Correlation Between SOUTHWEST AIRLINES and Highlight Communications

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

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

Diversification Opportunities for SOUTHWEST AIRLINES and Highlight Communications

0.19

Correlation Coefficient

SOUTHWEST AIRLINES  Highlight Communications

Average diversification

The 3 months correlation between SOUTHWEST and Highlight is 0.19. Overlapping area represents the amount of risk that can be diversified away by holding SOUTHWEST AIRLINES and Highlight Communications AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Highlight Communications 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 Highlight Communications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Highlight Communications has no effect on the direction of SOUTHWEST AIRLINES i.e., SOUTHWEST AIRLINES and Highlight Communications go up and down completely randomly.

Pair Corralation between SOUTHWEST AIRLINES and Highlight Communications

Assuming the 90 days trading horizon SOUTHWEST AIRLINES is expected to generate 0.36 times more return on investment than Highlight Communications. However, SOUTHWEST AIRLINES is 2.76 times less risky than Highlight Communications. It trades about -0.31 of its potential returns per unit of risk. Highlight Communications AG is currently generating about -0.13 per unit of risk. If you would invest  3,242  in SOUTHWEST AIRLINES on December 11, 2024 and sell it today you would lose (542.00) from holding SOUTHWEST AIRLINES or give up 16.72% of portfolio value over 90 days.

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

SOUTHWEST AIRLINES  vs.  Highlight Communications AG

SOUTHWEST AIRLINES

Risk-Adjusted Performance

Very Weak

Over the last 90 days SOUTHWEST AIRLINES has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fragile performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in April 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Highlight Communications

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Highlight Communications AG are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile technical and fundamental indicators, Highlight Communications may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with SOUTHWEST AIRLINES and Highlight Communications

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

The idea behind SOUTHWEST AIRLINES and Highlight Communications AG 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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.