Correlation Between Southwest Airlines and Norwegian Air
Can any of the company-specific risk be diversified away by investing in both Southwest Airlines and Norwegian Air 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 Norwegian Air into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Southwest Airlines Co and Norwegian Air Shuttle, you can compare the effects of market volatilities on Southwest Airlines and Norwegian Air 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 Norwegian Air. Check out your portfolio center. Please also check ongoing floating volatility patterns of Southwest Airlines and Norwegian Air.
Diversification Opportunities for Southwest Airlines and Norwegian Air
0.43 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Southwest and Norwegian is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding Southwest Airlines Co and Norwegian Air Shuttle in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Norwegian Air Shuttle 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 Co are associated (or correlated) with Norwegian Air. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Norwegian Air Shuttle has no effect on the direction of Southwest Airlines i.e., Southwest Airlines and Norwegian Air go up and down completely randomly.
Pair Corralation between Southwest Airlines and Norwegian Air
Assuming the 90 days trading horizon Southwest Airlines Co is expected to under-perform the Norwegian Air. But the stock apears to be less risky and, when comparing its historical volatility, Southwest Airlines Co is 1.24 times less risky than Norwegian Air. The stock trades about -0.27 of its potential returns per unit of risk. The Norwegian Air Shuttle is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest 1,106 in Norwegian Air Shuttle on November 7, 2024 and sell it today you would lose (19.00) from holding Norwegian Air Shuttle or give up 1.72% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Southwest Airlines Co vs. Norwegian Air Shuttle
Performance |
| Timeline |
| Southwest Airlines |
| Norwegian Air Shuttle |
Southwest Airlines and Norwegian Air Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Southwest Airlines and Norwegian Air
The main advantage of trading using opposite Southwest Airlines and Norwegian Air positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Southwest Airlines position performs unexpectedly, Norwegian Air 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 Norwegian Air will offset losses from the drop in Norwegian Air's long position.| Southwest Airlines vs. Chrysalis Investments | Southwest Airlines vs. Sovereign Metals | Southwest Airlines vs. Herald Investment Trust | Southwest Airlines vs. Wheaton Precious Metals |
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Check out your portfolio center.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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.
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