Correlation Between American Airlines and Southwest Airlines
Can any of the company-specific risk be diversified away by investing in both American Airlines 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 American Airlines and Southwest Airlines into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between American Airlines Group and Southwest Airlines, you can compare the effects of market volatilities on American Airlines 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 American Airlines with a short position of Southwest Airlines. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Airlines and Southwest Airlines.
Diversification Opportunities for American Airlines and Southwest Airlines
0.83 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between American and Southwest is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding American Airlines Group and Southwest Airlines in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Southwest Airlines and American 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 American Airlines Group 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 American Airlines i.e., American Airlines and Southwest Airlines go up and down completely randomly.
Pair Corralation between American Airlines and Southwest Airlines
Considering the 90-day investment horizon American Airlines Group is expected to generate 1.12 times more return on investment than Southwest Airlines. However, American Airlines is 1.12 times more volatile than Southwest Airlines. It trades about 0.01 of its potential returns per unit of risk. Southwest Airlines is currently generating about -0.01 per unit of risk. If you would invest 1,397 in American Airlines Group on August 23, 2024 and sell it today you would earn a total of 23.00 from holding American Airlines Group or generate 1.65% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
American Airlines Group vs. Southwest Airlines
Performance |
| Timeline |
| American Airlines |
| Southwest Airlines |
American Airlines and Southwest Airlines Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with American Airlines and Southwest Airlines
The main advantage of trading using opposite American Airlines and Southwest Airlines positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Airlines 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.| American Airlines vs. Delta Air Lines | American Airlines vs. Southwest Airlines | American Airlines vs. JetBlue Airways Corp | American Airlines vs. Spirit Airlines |
| Southwest Airlines vs. United Airlines Holdings | Southwest Airlines vs. American Airlines Group | Southwest Airlines vs. JetBlue Airways Corp | Southwest Airlines vs. Spirit Airlines |
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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.
Other Complementary Tools
| Latest Portfolios Quick portfolio dashboard that showcases your latest portfolios | |
| Portfolio Suggestion Get suggestions outside of your existing asset allocation including your own model portfolios | |
| My Watchlist Analysis Analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like | |
| Competition Analyzer Analyze and compare many basic indicators for a group of related or unrelated entities | |
| USA ETFs Find actively traded Exchange Traded Funds (ETF) in USA |