Correlation Between Apple and SOUTHWEST AIRLINES
Can any of the company-specific risk be diversified away by investing in both Apple 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 Apple and SOUTHWEST AIRLINES into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Apple Inc and SOUTHWEST AIRLINES, you can compare the effects of market volatilities on Apple 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 Apple with a short position of SOUTHWEST AIRLINES. Check out your portfolio center. Please also check ongoing floating volatility patterns of Apple and SOUTHWEST AIRLINES.
Diversification Opportunities for Apple and SOUTHWEST AIRLINES
0.75 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Apple and SOUTHWEST is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Apple Inc and SOUTHWEST AIRLINES in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SOUTHWEST AIRLINES and Apple 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 Apple 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 Apple i.e., Apple and SOUTHWEST AIRLINES go up and down completely randomly.
Pair Corralation between Apple and SOUTHWEST AIRLINES
Assuming the 90 days trading horizon Apple is expected to generate 2.75 times less return on investment than SOUTHWEST AIRLINES. But when comparing it to its historical volatility, Apple Inc is 1.45 times less risky than SOUTHWEST AIRLINES. It trades about 0.09 of its potential returns per unit of risk. SOUTHWEST AIRLINES is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest 2,541 in SOUTHWEST AIRLINES on August 28, 2024 and sell it today you would earn a total of 540.00 from holding SOUTHWEST AIRLINES or generate 21.25% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Apple Inc vs. SOUTHWEST AIRLINES
Performance |
| Timeline |
| Apple Inc |
| SOUTHWEST AIRLINES |
Apple and SOUTHWEST AIRLINES Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Apple and SOUTHWEST AIRLINES
The main advantage of trading using opposite Apple and SOUTHWEST AIRLINES positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Apple 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's long position.| Apple vs. Summit Materials | Apple vs. Lion One Metals | Apple vs. SANOK RUBBER ZY | Apple vs. Goodyear Tire Rubber |
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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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.
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