Correlation Between Southwest Airlines and Zegona Communications
Can any of the company-specific risk be diversified away by investing in both Southwest Airlines and Zegona Communications 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 Zegona Communications 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 Zegona Communications Plc, you can compare the effects of market volatilities on Southwest Airlines and Zegona Communications 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 Zegona Communications. Check out your portfolio center. Please also check ongoing floating volatility patterns of Southwest Airlines and Zegona Communications.
Diversification Opportunities for Southwest Airlines and Zegona Communications
0.27 | Correlation Coefficient |
Modest diversification
The 3 months correlation between Southwest and Zegona is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding Southwest Airlines Co and Zegona Communications Plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Zegona Communications 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 Zegona Communications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Zegona Communications Plc has no effect on the direction of Southwest Airlines i.e., Southwest Airlines and Zegona Communications go up and down completely randomly.
Pair Corralation between Southwest Airlines and Zegona Communications
Assuming the 90 days trading horizon Southwest Airlines Co is expected to under-perform the Zegona Communications. But the stock apears to be less risky and, when comparing its historical volatility, Southwest Airlines Co is 3.57 times less risky than Zegona Communications. The stock trades about -0.12 of its potential returns per unit of risk. The Zegona Communications Plc is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest 33,400 in Zegona Communications Plc on October 10, 2024 and sell it today you would earn a total of 7,400 from holding Zegona Communications Plc or generate 22.16% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 95.24% |
| Values | Daily Returns |
Southwest Airlines Co vs. Zegona Communications Plc
Performance |
| Timeline |
| Southwest Airlines |
| Zegona Communications Plc |
Southwest Airlines and Zegona Communications Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Southwest Airlines and Zegona Communications
The main advantage of trading using opposite Southwest Airlines and Zegona Communications positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Southwest Airlines position performs unexpectedly, Zegona Communications 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 Zegona Communications will offset losses from the drop in Zegona Communications' long position.| Southwest Airlines vs. Canadian General Investments | Southwest Airlines vs. Herald Investment Trust | Southwest Airlines vs. Chrysalis Investments | Southwest Airlines vs. URU Metals |
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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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.
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