Correlation Between SOUTHWEST AIRLINES and Safety Insurance

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

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

Diversification Opportunities for SOUTHWEST AIRLINES and Safety Insurance

0.87

Correlation Coefficient

SOUTHWEST AIRLINES  Safety Insurance

Very poor diversification

The 3 months correlation between SOUTHWEST and Safety is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding SOUTHWEST AIRLINES and Safety Insurance Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Safety Insurance 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 Safety Insurance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Safety Insurance has no effect on the direction of SOUTHWEST AIRLINES i.e., SOUTHWEST AIRLINES and Safety Insurance go up and down completely randomly.

Pair Corralation between SOUTHWEST AIRLINES and Safety Insurance

Assuming the 90 days trading horizon SOUTHWEST AIRLINES is expected to generate 1.24 times more return on investment than Safety Insurance. However, SOUTHWEST AIRLINES is 1.24 times more volatile than Safety Insurance Group. It trades about 0.17 of its potential returns per unit of risk. Safety Insurance Group is currently generating about 0.08 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 Together
Strength	Strong
Accuracy	100.0%
Values	Daily Returns

SOUTHWEST AIRLINES  vs.  Safety Insurance Group

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.

Safety Insurance

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Safety Insurance Group are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Safety Insurance may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with SOUTHWEST AIRLINES and Safety Insurance

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

The idea behind SOUTHWEST AIRLINES and Safety Insurance Group 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 Stocks Directory module to find actively traded stocks across global markets.