Correlation Between Southwest Airlines and Pacific Horizon
Can any of the company-specific risk be diversified away by investing in both Southwest Airlines and Pacific Horizon 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 Pacific Horizon 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 Pacific Horizon Investment, you can compare the effects of market volatilities on Southwest Airlines and Pacific Horizon 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 Pacific Horizon. Check out your portfolio center. Please also check ongoing floating volatility patterns of Southwest Airlines and Pacific Horizon.
Diversification Opportunities for Southwest Airlines and Pacific Horizon
0.04 | Correlation Coefficient |
Significant diversification
The 3 months correlation between Southwest and Pacific is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding Southwest Airlines Co and Pacific Horizon Investment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pacific Horizon Inve 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 Pacific Horizon. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pacific Horizon Inve has no effect on the direction of Southwest Airlines i.e., Southwest Airlines and Pacific Horizon go up and down completely randomly.
Pair Corralation between Southwest Airlines and Pacific Horizon
Assuming the 90 days trading horizon Southwest Airlines Co is expected to generate 2.6 times more return on investment than Pacific Horizon. However, Southwest Airlines is 2.6 times more volatile than Pacific Horizon Investment. It trades about 0.18 of its potential returns per unit of risk. Pacific Horizon Investment is currently generating about -0.13 per unit of risk. If you would invest 3,059 in Southwest Airlines Co on September 1, 2024 and sell it today you would earn a total of 193.00 from holding Southwest Airlines Co or generate 6.31% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 95.65% |
| Values | Daily Returns |
Southwest Airlines Co vs. Pacific Horizon Investment
Performance |
| Timeline |
| Southwest Airlines |
| Pacific Horizon Inve |
Southwest Airlines and Pacific Horizon Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Southwest Airlines and Pacific Horizon
The main advantage of trading using opposite Southwest Airlines and Pacific Horizon positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Southwest Airlines position performs unexpectedly, Pacific Horizon 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 Pacific Horizon will offset losses from the drop in Pacific Horizon's 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 |
| Pacific Horizon vs. Microchip Technology | Pacific Horizon vs. Synthomer plc | Pacific Horizon vs. Pets at Home | Pacific Horizon vs. Cognizant Technology Solutions |
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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.
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