Correlation Between Southwest Airlines and Electronic Arts
Can any of the company-specific risk be diversified away by investing in both Southwest Airlines and Electronic Arts 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 Electronic Arts 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 Electronic Arts, you can compare the effects of market volatilities on Southwest Airlines and Electronic Arts 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 Electronic Arts. Check out your portfolio center. Please also check ongoing floating volatility patterns of Southwest Airlines and Electronic Arts.
Diversification Opportunities for Southwest Airlines and Electronic Arts
0.67 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Southwest and Electronic is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Southwest Airlines Co and Electronic Arts in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Electronic Arts 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 Electronic Arts. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Electronic Arts has no effect on the direction of Southwest Airlines i.e., Southwest Airlines and Electronic Arts go up and down completely randomly.
Pair Corralation between Southwest Airlines and Electronic Arts
Assuming the 90 days trading horizon Southwest Airlines Co is expected to under-perform the Electronic Arts. But the stock apears to be less risky and, when comparing its historical volatility, Southwest Airlines Co is 1.44 times less risky than Electronic Arts. The stock trades about -0.02 of its potential returns per unit of risk. The Electronic Arts is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest 11,840 in Electronic Arts on December 1, 2024 and sell it today you would earn a total of 1,037 from holding Electronic Arts or generate 8.76% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Southwest Airlines Co vs. Electronic Arts
Performance |
| Timeline |
| Southwest Airlines |
| Electronic Arts |
Southwest Airlines and Electronic Arts Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Southwest Airlines and Electronic Arts
The main advantage of trading using opposite Southwest Airlines and Electronic Arts positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Southwest Airlines position performs unexpectedly, Electronic Arts 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 Electronic Arts will offset losses from the drop in Electronic Arts' long position.| Southwest Airlines vs. Amedeo Air Four | Southwest Airlines vs. Finnair Oyj | Southwest Airlines vs. Air Products Chemicals | Southwest Airlines vs. Charter Communications Cl |
| Electronic Arts vs. Baker Steel Resources | Electronic Arts vs. United States Steel | Electronic Arts vs. Sabre Insurance Group | Electronic Arts vs. Iron Mountain |
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 Transaction History module to view history of all your transactions and understand their impact on performance.
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