Correlation Between Air Transport and Southwest Airlines
Can any of the company-specific risk be diversified away by investing in both Air Transport 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 Air Transport and Southwest Airlines into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Air Transport Services and Southwest Airlines, you can compare the effects of market volatilities on Air Transport 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 Air Transport with a short position of Southwest Airlines. Check out your portfolio center. Please also check ongoing floating volatility patterns of Air Transport and Southwest Airlines.
Diversification Opportunities for Air Transport and Southwest Airlines
0.62 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Air and Southwest is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Air Transport Services and Southwest Airlines in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Southwest Airlines and Air Transport 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 Air Transport Services 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 Air Transport i.e., Air Transport and Southwest Airlines go up and down completely randomly.
Pair Corralation between Air Transport and Southwest Airlines
Given the investment horizon of 90 days Air Transport Services is expected to generate 1.52 times more return on investment than Southwest Airlines. However, Air Transport is 1.52 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 0.0 per unit of risk. If you would invest 2,507 in Air Transport Services on November 2, 2024 and sell it today you would lose (281.50) from holding Air Transport Services or give up 11.23% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Air Transport Services vs. Southwest Airlines
Performance |
| Timeline |
| Air Transport Services |
| Southwest Airlines |
Air Transport and Southwest Airlines Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Air Transport and Southwest Airlines
The main advantage of trading using opposite Air Transport and Southwest Airlines positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Air Transport 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.| Air Transport vs. Copa Holdings SA | Air Transport vs. SkyWest | Air Transport vs. Sun Country Airlines | Air Transport vs. Frontier Group Holdings |
| Southwest Airlines vs. United Airlines Holdings | Southwest Airlines vs. American Airlines Group | Southwest Airlines vs. JetBlue Airways Corp | Southwest Airlines vs. Delta Air Lines |
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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .
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