Correlation Between Southwest Airlines and Fortune Brands
Can any of the company-specific risk be diversified away by investing in both Southwest Airlines and Fortune Brands 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 Fortune Brands 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 Fortune Brands Home, you can compare the effects of market volatilities on Southwest Airlines and Fortune Brands 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 Fortune Brands. Check out your portfolio center. Please also check ongoing floating volatility patterns of Southwest Airlines and Fortune Brands.
Diversification Opportunities for Southwest Airlines and Fortune Brands
0.02 | Correlation Coefficient |
Significant diversification
The 3 months correlation between Southwest and Fortune is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding Southwest Airlines Co and Fortune Brands Home in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fortune Brands Home 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 Fortune Brands. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fortune Brands Home has no effect on the direction of Southwest Airlines i.e., Southwest Airlines and Fortune Brands go up and down completely randomly.
Pair Corralation between Southwest Airlines and Fortune Brands
Assuming the 90 days trading horizon Southwest Airlines Co is expected to generate 0.89 times more return on investment than Fortune Brands. However, Southwest Airlines Co is 1.13 times less risky than Fortune Brands. It trades about 0.15 of its potential returns per unit of risk. Fortune Brands Home is currently generating about -0.21 per unit of risk. If you would invest 3,025 in Southwest Airlines Co on August 29, 2024 and sell it today you would earn a total of 186.00 from holding Southwest Airlines Co or generate 6.15% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Southwest Airlines Co vs. Fortune Brands Home
Performance |
| Timeline |
| Southwest Airlines |
| Fortune Brands Home |
Southwest Airlines and Fortune Brands Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Southwest Airlines and Fortune Brands
The main advantage of trading using opposite Southwest Airlines and Fortune Brands positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Southwest Airlines position performs unexpectedly, Fortune Brands 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 Fortune Brands will offset losses from the drop in Fortune Brands' long position.| Southwest Airlines vs. Lendinvest PLC | Southwest Airlines vs. Neometals | Southwest Airlines vs. Coor Service Management | Southwest Airlines vs. Albion Technology General |
| Fortune Brands vs. Lendinvest PLC | Fortune Brands vs. Neometals | Fortune Brands vs. Coor Service Management | Fortune Brands vs. Albion Technology General |
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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.
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