Correlation Between CSX and Southwest Airlines
Can any of the company-specific risk be diversified away by investing in both CSX 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 CSX and Southwest Airlines into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between CSX Corporation and Southwest Airlines, you can compare the effects of market volatilities on CSX 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 CSX with a short position of Southwest Airlines. Check out your portfolio center. Please also check ongoing floating volatility patterns of CSX and Southwest Airlines.
Diversification Opportunities for CSX and Southwest Airlines
0.66 | Correlation Coefficient |
Poor diversification
The 3 months correlation between CSX and Southwest is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding CSX Corp. and Southwest Airlines in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Southwest Airlines and CSX 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 CSX Corporation 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 CSX i.e., CSX and Southwest Airlines go up and down completely randomly.
Pair Corralation between CSX and Southwest Airlines
Considering the 90-day investment horizon CSX Corporation is expected to generate 1.43 times more return on investment than Southwest Airlines. However, CSX is 1.43 times more volatile than Southwest Airlines. It trades about 0.2 of its potential returns per unit of risk. Southwest Airlines is currently generating about 0.13 per unit of risk. If you would invest 3,325 in CSX Corporation on August 30, 2024 and sell it today you would earn a total of 333.00 from holding CSX Corporation or generate 10.02% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 95.65% |
| Values | Daily Returns |
CSX Corp. vs. Southwest Airlines
Performance |
| Timeline |
| CSX Corporation |
| Southwest Airlines |
CSX and Southwest Airlines Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with CSX and Southwest Airlines
The main advantage of trading using opposite CSX and Southwest Airlines positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CSX 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.| CSX vs. Union Pacific | CSX vs. Canadian National Railway | CSX vs. Canadian Pacific Railway | CSX vs. Westinghouse Air Brake |
| 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.
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