Correlation Between Capital One and Southwest Airlines
Can any of the company-specific risk be diversified away by investing in both Capital One 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 Capital One and Southwest Airlines into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Capital One Financial and Southwest Airlines Co, you can compare the effects of market volatilities on Capital One 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 Capital One with a short position of Southwest Airlines. Check out your portfolio center. Please also check ongoing floating volatility patterns of Capital One and Southwest Airlines.
Diversification Opportunities for Capital One and Southwest Airlines
0.46 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Capital and Southwest is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding Capital One Financial and Southwest Airlines Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Southwest Airlines and Capital One 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 Capital One Financial 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 Capital One i.e., Capital One and Southwest Airlines go up and down completely randomly.
Pair Corralation between Capital One and Southwest Airlines
Assuming the 90 days trading horizon Capital One Financial is expected to generate 0.81 times more return on investment than Southwest Airlines. However, Capital One Financial is 1.24 times less risky than Southwest Airlines. It trades about 0.1 of its potential returns per unit of risk. Southwest Airlines Co is currently generating about -0.01 per unit of risk. If you would invest 23,771 in Capital One Financial on September 4, 2024 and sell it today you would earn a total of 34,882 from holding Capital One Financial or generate 146.74% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 74.09% |
| Values | Daily Returns |
Capital One Financial vs. Southwest Airlines Co
Performance |
| Timeline |
| Capital One Financial |
| Southwest Airlines |
Capital One and Southwest Airlines Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Capital One and Southwest Airlines
The main advantage of trading using opposite Capital One and Southwest Airlines positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Capital One 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.| Capital One vs. Dell Technologies | Capital One vs. Planet Fitness | Capital One vs. Align Technology | Capital One vs. Raytheon Technologies |
| Southwest Airlines vs. Take Two Interactive Software | Southwest Airlines vs. BIONTECH SE DRN | Southwest Airlines vs. Micron Technology | Southwest Airlines vs. Broadcom |
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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.
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