Correlation Between Varta AG and SOUTHWEST AIRLINES

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

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

Diversification Opportunities for Varta AG and SOUTHWEST AIRLINES

-0.47

Correlation Coefficient

Varta AG  SOUTHWEST AIRLINES

Very good diversification

The 3 months correlation between Varta and SOUTHWEST is -0.47. Overlapping area represents the amount of risk that can be diversified away by holding Varta AG and SOUTHWEST AIRLINES in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SOUTHWEST AIRLINES and Varta AG 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 Varta AG 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 Varta AG i.e., Varta AG and SOUTHWEST AIRLINES go up and down completely randomly.

Pair Corralation between Varta AG and SOUTHWEST AIRLINES

Assuming the 90 days trading horizon Varta AG is expected to generate 8.47 times more return on investment than SOUTHWEST AIRLINES. However, Varta AG is 8.47 times more volatile than SOUTHWEST AIRLINES. It trades about 0.08 of its potential returns per unit of risk. SOUTHWEST AIRLINES is currently generating about 0.15 per unit of risk. If you would invest  143.00  in Varta AG on October 7, 2024 and sell it today you would earn a total of  27.00  from holding Varta AG or generate 18.88% return on investment over 90 days.

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

Varta AG  vs.  SOUTHWEST AIRLINES

Varta AG

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Varta AG are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain basic indicators, Varta AG exhibited solid returns over the last few months and may actually be approaching a breakup point.

SOUTHWEST AIRLINES

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in SOUTHWEST AIRLINES are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, SOUTHWEST AIRLINES unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Varta AG and SOUTHWEST AIRLINES

The main advantage of trading using opposite Varta AG and SOUTHWEST AIRLINES positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Varta AG 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's long position.

The idea behind Varta AG 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 Transaction History module to view history of all your transactions and understand their impact on performance.