Correlation Between BRIT AMER and SOUTHWEST AIRLINES
Can any of the company-specific risk be diversified away by investing in both BRIT AMER 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 BRIT AMER and SOUTHWEST AIRLINES into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between BRIT AMER TOBACCO and SOUTHWEST AIRLINES, you can compare the effects of market volatilities on BRIT AMER 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 BRIT AMER with a short position of SOUTHWEST AIRLINES. Check out your portfolio center. Please also check ongoing floating volatility patterns of BRIT AMER and SOUTHWEST AIRLINES.
Diversification Opportunities for BRIT AMER and SOUTHWEST AIRLINES
0.29 | Correlation Coefficient |
Modest diversification
The 3 months correlation between BRIT and SOUTHWEST is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding BRIT AMER TOBACCO and SOUTHWEST AIRLINES in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SOUTHWEST AIRLINES and BRIT AMER 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 BRIT AMER TOBACCO 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 BRIT AMER i.e., BRIT AMER and SOUTHWEST AIRLINES go up and down completely randomly.
Pair Corralation between BRIT AMER and SOUTHWEST AIRLINES
Assuming the 90 days trading horizon BRIT AMER is expected to generate 2.05 times less return on investment than SOUTHWEST AIRLINES. But when comparing it to its historical volatility, BRIT AMER TOBACCO is 1.36 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 0.13 of returns per unit of risk over similar time horizon. If you would invest 2,638 in SOUTHWEST AIRLINES on September 3, 2024 and sell it today you would earn a total of 412.00 from holding SOUTHWEST AIRLINES or generate 15.62% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
BRIT AMER TOBACCO vs. SOUTHWEST AIRLINES
Performance |
| Timeline |
| BRIT AMER TOBACCO |
| SOUTHWEST AIRLINES |
BRIT AMER and SOUTHWEST AIRLINES Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with BRIT AMER and SOUTHWEST AIRLINES
The main advantage of trading using opposite BRIT AMER and SOUTHWEST AIRLINES positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BRIT AMER 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.| BRIT AMER vs. FEMALE HEALTH | BRIT AMER vs. PARKEN Sport Entertainment | BRIT AMER vs. Amkor Technology | BRIT AMER vs. CVS Health |
| SOUTHWEST AIRLINES vs. MCEWEN MINING INC | SOUTHWEST AIRLINES vs. GALENA MINING LTD | SOUTHWEST AIRLINES vs. Apollo Investment Corp | SOUTHWEST AIRLINES vs. SLR Investment Corp |
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 Global Correlations module to find global opportunities by holding instruments from different markets.
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