Correlation Between SOUTHWEST AIRLINES and NIPPON MEAT

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

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

Diversification Opportunities for SOUTHWEST AIRLINES and NIPPON MEAT

0.54

Correlation Coefficient

SOUTHWEST AIRLINES  NIPPON MEAT

Very weak diversification

The 3 months correlation between SOUTHWEST and NIPPON is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding SOUTHWEST AIRLINES and NIPPON MEAT PACKERS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NIPPON MEAT PACKERS 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 NIPPON MEAT. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NIPPON MEAT PACKERS has no effect on the direction of SOUTHWEST AIRLINES i.e., SOUTHWEST AIRLINES and NIPPON MEAT go up and down completely randomly.

Pair Corralation between SOUTHWEST AIRLINES and NIPPON MEAT

Assuming the 90 days trading horizon SOUTHWEST AIRLINES is expected to under-perform the NIPPON MEAT. In addition to that, SOUTHWEST AIRLINES is 1.37 times more volatile than NIPPON MEAT PACKERS. It trades about 0.0 of its total potential returns per unit of risk. NIPPON MEAT PACKERS is currently generating about 0.03 per unit of volatility. If you would invest  3,000  in NIPPON MEAT PACKERS on December 23, 2024 and sell it today you would earn a total of  60.00  from holding NIPPON MEAT PACKERS or generate 2.0% return on investment over 90 days.

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

SOUTHWEST AIRLINES  vs.  NIPPON MEAT PACKERS

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 comparatively stable basic indicators, SOUTHWEST AIRLINES is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

NIPPON MEAT PACKERS

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in NIPPON MEAT PACKERS are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, NIPPON MEAT is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with SOUTHWEST AIRLINES and NIPPON MEAT

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

The idea behind SOUTHWEST AIRLINES and NIPPON MEAT PACKERS 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.