Correlation Between SOUTHWEST AIRLINES and KOWORLD AG

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

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

Diversification Opportunities for SOUTHWEST AIRLINES and KOWORLD AG

-0.45

Correlation Coefficient

SOUTHWEST AIRLINES  KOWORLD AG

Very good diversification

The 3 months correlation between SOUTHWEST and KOWORLD is -0.45. Overlapping area represents the amount of risk that can be diversified away by holding SOUTHWEST AIRLINES and KOWORLD AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KOWORLD AG 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 KOWORLD AG. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of KOWORLD AG has no effect on the direction of SOUTHWEST AIRLINES i.e., SOUTHWEST AIRLINES and KOWORLD AG go up and down completely randomly.

Pair Corralation between SOUTHWEST AIRLINES and KOWORLD AG

Assuming the 90 days trading horizon SOUTHWEST AIRLINES is expected to generate 0.88 times more return on investment than KOWORLD AG. However, SOUTHWEST AIRLINES is 1.14 times less risky than KOWORLD AG. It trades about 0.1 of its potential returns per unit of risk. KOWORLD AG is currently generating about -0.1 per unit of risk. If you would invest  2,780  in SOUTHWEST AIRLINES on October 26, 2024 and sell it today you would earn a total of  280.00  from holding SOUTHWEST AIRLINES or generate 10.07% return on investment over 90 days.

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

SOUTHWEST AIRLINES  vs.  KOWORLD AG

SOUTHWEST AIRLINES

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in SOUTHWEST AIRLINES are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, SOUTHWEST AIRLINES may actually be approaching a critical reversion point that can send shares even higher in February 2025.

KOWORLD AG

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days KOWORLD AG has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with SOUTHWEST AIRLINES and KOWORLD AG

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

The idea behind SOUTHWEST AIRLINES and KOWORLD AG 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.