Correlation Between Southwest Airlines and Cairn Homes
Can any of the company-specific risk be diversified away by investing in both Southwest Airlines and Cairn Homes 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 Cairn Homes 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 Cairn Homes PLC, you can compare the effects of market volatilities on Southwest Airlines and Cairn Homes 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 Cairn Homes. Check out your portfolio center. Please also check ongoing floating volatility patterns of Southwest Airlines and Cairn Homes.
Diversification Opportunities for Southwest Airlines and Cairn Homes
0.68 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Southwest and Cairn is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Southwest Airlines Co and Cairn Homes PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cairn Homes PLC 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 Cairn Homes. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cairn Homes PLC has no effect on the direction of Southwest Airlines i.e., Southwest Airlines and Cairn Homes go up and down completely randomly.
Pair Corralation between Southwest Airlines and Cairn Homes
Assuming the 90 days trading horizon Southwest Airlines Co is expected to generate 1.23 times more return on investment than Cairn Homes. However, Southwest Airlines is 1.23 times more volatile than Cairn Homes PLC. It trades about 0.07 of its potential returns per unit of risk. Cairn Homes PLC is currently generating about 0.09 per unit of risk. If you would invest 2,728 in Southwest Airlines Co on September 1, 2024 and sell it today you would earn a total of 524.00 from holding Southwest Airlines Co or generate 19.21% 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. Cairn Homes PLC
Performance |
| Timeline |
| Southwest Airlines |
| Cairn Homes PLC |
Southwest Airlines and Cairn Homes Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Southwest Airlines and Cairn Homes
The main advantage of trading using opposite Southwest Airlines and Cairn Homes positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Southwest Airlines position performs unexpectedly, Cairn Homes 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 Cairn Homes will offset losses from the drop in Cairn Homes' long position.| Southwest Airlines vs. Uniper SE | Southwest Airlines vs. Mulberry Group PLC | Southwest Airlines vs. London Security Plc | Southwest Airlines vs. Triad Group PLC |
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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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.
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