Correlation Between BLACK and Southwest Airlines

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

By analyzing existing cross correlation between BLACK HILLS P and Southwest Airlines, you can compare the effects of market volatilities on BLACK and Southwest Airlines 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 BLACK with a short position of Southwest Airlines. Check out your portfolio center. Please also check ongoing floating volatility patterns of BLACK and Southwest Airlines.

Diversification Opportunities for BLACK and Southwest Airlines

-0.12

Correlation Coefficient

BLACK  Southwest Airlines

Good diversification

The 3 months correlation between BLACK and Southwest is -0.12. Overlapping area represents the amount of risk that can be diversified away by holding BLACK HILLS P and Southwest Airlines in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Southwest Airlines and BLACK 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 BLACK HILLS P are associated (or correlated) with Southwest Airlines. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Southwest Airlines has no effect on the direction of BLACK i.e., BLACK and Southwest Airlines go up and down completely randomly.

Pair Corralation between BLACK and Southwest Airlines

Assuming the 90 days trading horizon BLACK HILLS P is expected to generate 24.88 times more return on investment than Southwest Airlines. However, BLACK is 24.88 times more volatile than Southwest Airlines. It trades about 0.05 of its potential returns per unit of risk. Southwest Airlines is currently generating about 0.02 per unit of risk. If you would invest  9,670  in BLACK HILLS P on October 24, 2024 and sell it today you would earn a total of  232.00  from holding BLACK HILLS P or generate 2.4% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	83.7%
Values	Daily Returns

BLACK HILLS P  vs.  Southwest Airlines

BLACK HILLS P

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BLACK HILLS P has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, BLACK is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Southwest Airlines

Risk-Adjusted Performance

8 of 100

Good

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 fairly conflicting basic indicators, Southwest Airlines may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with BLACK and Southwest Airlines

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

The idea behind BLACK HILLS P and Southwest Airlines 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.