Correlation Between Southwest Airlines and Trellus Health
Can any of the company-specific risk be diversified away by investing in both Southwest Airlines and Trellus Health 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 Trellus Health 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 Trellus Health plc, you can compare the effects of market volatilities on Southwest Airlines and Trellus Health 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 Trellus Health. Check out your portfolio center. Please also check ongoing floating volatility patterns of Southwest Airlines and Trellus Health.
Diversification Opportunities for Southwest Airlines and Trellus Health
-0.62 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Southwest and Trellus is -0.62. Overlapping area represents the amount of risk that can be diversified away by holding Southwest Airlines Co and Trellus Health plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Trellus Health 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 Trellus Health. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Trellus Health plc has no effect on the direction of Southwest Airlines i.e., Southwest Airlines and Trellus Health go up and down completely randomly.
Pair Corralation between Southwest Airlines and Trellus Health
Assuming the 90 days trading horizon Southwest Airlines Co is expected to generate 0.58 times more return on investment than Trellus Health. However, Southwest Airlines Co is 1.72 times less risky than Trellus Health. It trades about -0.07 of its potential returns per unit of risk. Trellus Health plc is currently generating about -0.36 per unit of risk. If you would invest 3,337 in Southwest Airlines Co on October 11, 2024 and sell it today you would lose (73.00) from holding Southwest Airlines Co or give up 2.19% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 95.24% |
| Values | Daily Returns |
Southwest Airlines Co vs. Trellus Health plc
Performance |
| Timeline |
| Southwest Airlines |
| Trellus Health plc |
Southwest Airlines and Trellus Health Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Southwest Airlines and Trellus Health
The main advantage of trading using opposite Southwest Airlines and Trellus Health positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Southwest Airlines position performs unexpectedly, Trellus Health 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 Trellus Health will offset losses from the drop in Trellus Health's long position.| Southwest Airlines vs. National Beverage Corp | Southwest Airlines vs. Bloomsbury Publishing Plc | Southwest Airlines vs. European Metals Holdings | Southwest Airlines vs. Sovereign Metals |
| Trellus Health vs. Cars Inc | Trellus Health vs. BE Semiconductor Industries | Trellus Health vs. Southwest Airlines Co | Trellus Health vs. Scandic Hotels Group |
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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.
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