Correlation Between Universal Insurance and Southwest Airlines
Can any of the company-specific risk be diversified away by investing in both Universal Insurance and Southwest Airlines 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 Universal Insurance and Southwest Airlines into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Universal Insurance Holdings and Southwest Airlines Co, you can compare the effects of market volatilities on Universal Insurance and Southwest Airlines 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 Universal Insurance with a short position of Southwest Airlines. Check out your portfolio center. Please also check ongoing floating volatility patterns of Universal Insurance and Southwest Airlines.
Diversification Opportunities for Universal Insurance and Southwest Airlines
0.61 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Universal and Southwest is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Universal Insurance Holdings and Southwest Airlines Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Southwest Airlines and Universal Insurance 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 Universal Insurance Holdings are associated (or correlated) with Southwest Airlines. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Southwest Airlines has no effect on the direction of Universal Insurance i.e., Universal Insurance and Southwest Airlines go up and down completely randomly.
Pair Corralation between Universal Insurance and Southwest Airlines
Assuming the 90 days horizon Universal Insurance is expected to generate 2.63 times less return on investment than Southwest Airlines. But when comparing it to its historical volatility, Universal Insurance Holdings is 1.34 times less risky than Southwest Airlines. It trades about 0.1 of its potential returns per unit of risk. Southwest Airlines Co is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest 2,960 in Southwest Airlines Co on September 12, 2024 and sell it today you would earn a total of 222.00 from holding Southwest Airlines Co or generate 7.5% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Universal Insurance Holdings vs. Southwest Airlines Co
Performance |
| Timeline |
| Universal Insurance |
| Southwest Airlines |
Universal Insurance and Southwest Airlines Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Universal Insurance and Southwest Airlines
The main advantage of trading using opposite Universal Insurance and Southwest Airlines positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Universal Insurance position performs unexpectedly, Southwest Airlines 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 Southwest Airlines will offset losses from the drop in Southwest Airlines' long position.| Universal Insurance vs. QBE Insurance Group | Universal Insurance vs. Insurance Australia Group | Universal Insurance vs. Superior Plus Corp | Universal Insurance vs. SIVERS SEMICONDUCTORS AB |
| Southwest Airlines vs. RYANAIR HLDGS ADR | Southwest Airlines vs. Ryanair Holdings plc | Southwest Airlines vs. Superior Plus Corp | Southwest Airlines vs. SIVERS SEMICONDUCTORS AB |
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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.
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