Correlation Between Ford and Southwest Airlines
Can any of the company-specific risk be diversified away by investing in both Ford 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 Ford and Southwest Airlines into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ford Motor and Southwest Airlines Co, you can compare the effects of market volatilities on Ford 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 Ford with a short position of Southwest Airlines. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and Southwest Airlines.
Diversification Opportunities for Ford and Southwest Airlines
-0.48 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Ford and Southwest is -0.48. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Southwest Airlines Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Southwest Airlines and Ford 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 Ford Motor 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 Ford i.e., Ford and Southwest Airlines go up and down completely randomly.
Pair Corralation between Ford and Southwest Airlines
Taking into account the 90-day investment horizon Ford Motor is expected to generate 1.08 times more return on investment than Southwest Airlines. However, Ford is 1.08 times more volatile than Southwest Airlines Co. It trades about 0.16 of its potential returns per unit of risk. Southwest Airlines Co is currently generating about -0.18 per unit of risk. If you would invest 965.00 in Ford Motor on November 2, 2024 and sell it today you would earn a total of 51.00 from holding Ford Motor or generate 5.28% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 90.48% |
| Values | Daily Returns |
Ford Motor vs. Southwest Airlines Co
Performance |
| Timeline |
| Ford Motor |
| Southwest Airlines |
Ford and Southwest Airlines Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ford and Southwest Airlines
The main advantage of trading using opposite Ford and Southwest Airlines positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford 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.The idea behind Ford Motor and Southwest Airlines Co pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.| Southwest Airlines vs. CANON MARKETING JP | Southwest Airlines vs. BJs Restaurants | Southwest Airlines vs. Luckin Coffee | Southwest Airlines vs. H2O Retailing |
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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.
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