Correlation Between Adobe and Southwest Airlines
Can any of the company-specific risk be diversified away by investing in both Adobe 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 Adobe and Southwest Airlines into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Adobe Inc and Southwest Airlines Co, you can compare the effects of market volatilities on Adobe 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 Adobe with a short position of Southwest Airlines. Check out your portfolio center. Please also check ongoing floating volatility patterns of Adobe and Southwest Airlines.
Diversification Opportunities for Adobe and Southwest Airlines
-0.36 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Adobe and Southwest is -0.36. Overlapping area represents the amount of risk that can be diversified away by holding Adobe Inc and Southwest Airlines Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Southwest Airlines and Adobe 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 Adobe Inc 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 Adobe i.e., Adobe and Southwest Airlines go up and down completely randomly.
Pair Corralation between Adobe and Southwest Airlines
Assuming the 90 days trading horizon Adobe Inc is expected to generate 1.1 times more return on investment than Southwest Airlines. However, Adobe is 1.1 times more volatile than Southwest Airlines Co. It trades about 0.07 of its potential returns per unit of risk. Southwest Airlines Co is currently generating about 0.06 per unit of risk. If you would invest 4,901 in Adobe Inc on August 26, 2024 and sell it today you would earn a total of 1,059 from holding Adobe Inc or generate 21.61% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 99.21% |
| Values | Daily Returns |
Adobe Inc vs. Southwest Airlines Co
Performance |
| Timeline |
| Adobe Inc |
| Southwest Airlines |
Adobe and Southwest Airlines Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Adobe and Southwest Airlines
The main advantage of trading using opposite Adobe and Southwest Airlines positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Adobe 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.| Adobe vs. Charter Communications | Adobe vs. MAHLE Metal Leve | Adobe vs. New Oriental Education | Adobe vs. Brpr Corporate Offices |
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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.
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