Correlation Between SOUTHWEST AIRLINES and Wüstenrot Württembergische

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

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

Diversification Opportunities for SOUTHWEST AIRLINES and Wüstenrot Württembergische

-0.44

Correlation Coefficient

SOUTHWEST AIRLINES  Wüstenrot Württembergische

Very good diversification

The 3 months correlation between SOUTHWEST and Wüstenrot is -0.44. Overlapping area represents the amount of risk that can be diversified away by holding SOUTHWEST AIRLINES and Wstenrot Wrttembergische AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wüstenrot Württembergische 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 Wüstenrot Württembergische. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Wüstenrot Württembergische has no effect on the direction of SOUTHWEST AIRLINES i.e., SOUTHWEST AIRLINES and Wüstenrot Württembergische go up and down completely randomly.

Pair Corralation between SOUTHWEST AIRLINES and Wüstenrot Württembergische

Assuming the 90 days trading horizon SOUTHWEST AIRLINES is expected to generate 1.81 times more return on investment than Wüstenrot Württembergische. However, SOUTHWEST AIRLINES is 1.81 times more volatile than Wstenrot Wrttembergische AG. It trades about 0.09 of its potential returns per unit of risk. Wstenrot Wrttembergische AG is currently generating about -0.02 per unit of risk. If you would invest  2,814  in SOUTHWEST AIRLINES on October 23, 2024 and sell it today you would earn a total of  255.00  from holding SOUTHWEST AIRLINES or generate 9.06% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.33%
Values	Daily Returns

SOUTHWEST AIRLINES  vs.  Wstenrot Wrttembergische AG

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.

Wüstenrot Württembergische

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Wstenrot Wrttembergische AG has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Wüstenrot Württembergische is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with SOUTHWEST AIRLINES and Wüstenrot Württembergische

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

The idea behind SOUTHWEST AIRLINES and Wstenrot Wrttembergische 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..