Correlation Between SOUTHWEST AIRLINES and TomTom NV

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

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

Diversification Opportunities for SOUTHWEST AIRLINES and TomTom NV

0.6

Correlation Coefficient

SOUTHWEST AIRLINES  TomTom NV

Poor diversification

The 3 months correlation between SOUTHWEST and TomTom is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding SOUTHWEST AIRLINES and TomTom NV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TomTom NV 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 TomTom NV. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TomTom NV has no effect on the direction of SOUTHWEST AIRLINES i.e., SOUTHWEST AIRLINES and TomTom NV go up and down completely randomly.

Pair Corralation between SOUTHWEST AIRLINES and TomTom NV

Assuming the 90 days trading horizon SOUTHWEST AIRLINES is expected to under-perform the TomTom NV. But the stock apears to be less risky and, when comparing its historical volatility, SOUTHWEST AIRLINES is 1.2 times less risky than TomTom NV. The stock trades about -0.01 of its potential returns per unit of risk. The TomTom NV is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  499.00  in TomTom NV on December 30, 2024 and sell it today you would earn a total of  5.00  from holding TomTom NV or generate 1.0% return on investment over 90 days.

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

SOUTHWEST AIRLINES  vs.  TomTom NV

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 current stock price uproar, may contribute to short-horizon losses for the private investors.

TomTom NV

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in TomTom NV are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, TomTom NV is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with SOUTHWEST AIRLINES and TomTom NV

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

The idea behind SOUTHWEST AIRLINES and TomTom NV 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.