Correlation Between SOUTHWEST AIRLINES and Suncorp Group

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

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

Diversification Opportunities for SOUTHWEST AIRLINES and Suncorp Group

0.6

Correlation Coefficient

SOUTHWEST AIRLINES  Suncorp Group

Poor diversification

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

Pair Corralation between SOUTHWEST AIRLINES and Suncorp Group

Assuming the 90 days trading horizon SOUTHWEST AIRLINES is expected to generate 0.87 times more return on investment than Suncorp Group. However, SOUTHWEST AIRLINES is 1.15 times less risky than Suncorp Group. It trades about 0.14 of its potential returns per unit of risk. Suncorp Group Limited is currently generating about 0.04 per unit of risk. If you would invest  2,767  in SOUTHWEST AIRLINES on October 12, 2024 and sell it today you would earn a total of  405.00  from holding SOUTHWEST AIRLINES or generate 14.64% 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.  Suncorp Group Limited

SOUTHWEST AIRLINES

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in SOUTHWEST AIRLINES are ranked lower than 10 (%) 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.

Suncorp Group Limited

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Suncorp Group Limited are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Suncorp Group is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with SOUTHWEST AIRLINES and Suncorp Group

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

The idea behind SOUTHWEST AIRLINES and Suncorp Group Limited 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.