Correlation Between Southwest Airlines and Mercantile Investment
Can any of the company-specific risk be diversified away by investing in both Southwest Airlines and Mercantile Investment 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 Mercantile Investment 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 The Mercantile Investment, you can compare the effects of market volatilities on Southwest Airlines and Mercantile Investment 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 Mercantile Investment. Check out your portfolio center. Please also check ongoing floating volatility patterns of Southwest Airlines and Mercantile Investment.
Diversification Opportunities for Southwest Airlines and Mercantile Investment
-0.48 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Southwest and Mercantile is -0.48. Overlapping area represents the amount of risk that can be diversified away by holding Southwest Airlines Co and The Mercantile Investment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on The Mercantile Investment 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 Mercantile Investment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of The Mercantile Investment has no effect on the direction of Southwest Airlines i.e., Southwest Airlines and Mercantile Investment go up and down completely randomly.
Pair Corralation between Southwest Airlines and Mercantile Investment
Assuming the 90 days trading horizon Southwest Airlines Co is expected to under-perform the Mercantile Investment. In addition to that, Southwest Airlines is 1.34 times more volatile than The Mercantile Investment. It trades about -0.28 of its total potential returns per unit of risk. The Mercantile Investment is currently generating about 0.05 per unit of volatility. If you would invest 23,450 in The Mercantile Investment on November 28, 2024 and sell it today you would earn a total of 250.00 from holding The Mercantile Investment or generate 1.07% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Southwest Airlines Co vs. The Mercantile Investment
Performance |
| Timeline |
| Southwest Airlines |
| The Mercantile Investment |
Southwest Airlines and Mercantile Investment Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Southwest Airlines and Mercantile Investment
The main advantage of trading using opposite Southwest Airlines and Mercantile Investment positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Southwest Airlines position performs unexpectedly, Mercantile Investment 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 Mercantile Investment will offset losses from the drop in Mercantile Investment's long position.| Southwest Airlines vs. Catalyst Media Group | Southwest Airlines vs. One Media iP | Southwest Airlines vs. SBM Offshore NV | Southwest Airlines vs. XLMedia 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.
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