Correlation Between SOUTHWEST AIRLINES and SHIN-ETSU CHEMICAL

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

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

Diversification Opportunities for SOUTHWEST AIRLINES and SHIN-ETSU CHEMICAL

-0.63

Correlation Coefficient

SOUTHWEST AIRLINES  SHIN-ETSU CHEMICAL

Excellent diversification

The 3 months correlation between SOUTHWEST and SHIN-ETSU is -0.63. Overlapping area represents the amount of risk that can be diversified away by holding SOUTHWEST AIRLINES and SHIN ETSU CHEMICAL in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SHIN ETSU CHEMICAL 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 SHIN-ETSU CHEMICAL. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SHIN ETSU CHEMICAL has no effect on the direction of SOUTHWEST AIRLINES i.e., SOUTHWEST AIRLINES and SHIN-ETSU CHEMICAL go up and down completely randomly.

Pair Corralation between SOUTHWEST AIRLINES and SHIN-ETSU CHEMICAL

Assuming the 90 days trading horizon SOUTHWEST AIRLINES is expected to under-perform the SHIN-ETSU CHEMICAL. But the stock apears to be less risky and, when comparing its historical volatility, SOUTHWEST AIRLINES is 1.14 times less risky than SHIN-ETSU CHEMICAL. The stock trades about -0.24 of its potential returns per unit of risk. The SHIN ETSU CHEMICAL is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  3,105  in SHIN ETSU CHEMICAL on October 23, 2024 and sell it today you would earn a total of  73.00  from holding SHIN ETSU CHEMICAL or generate 2.35% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	94.12%
Values	Daily Returns

SOUTHWEST AIRLINES  vs.  SHIN ETSU CHEMICAL

SOUTHWEST AIRLINES

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in SOUTHWEST AIRLINES are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, SOUTHWEST AIRLINES may actually be approaching a critical reversion point that can send shares even higher in February 2025.

SHIN ETSU CHEMICAL

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SHIN ETSU CHEMICAL has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest fragile performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with SOUTHWEST AIRLINES and SHIN-ETSU CHEMICAL

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

The idea behind SOUTHWEST AIRLINES and SHIN ETSU CHEMICAL 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.