Correlation Between HSBC Holdings and Southwest Airlines
Can any of the company-specific risk be diversified away by investing in both HSBC Holdings 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 HSBC Holdings and Southwest Airlines into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between HSBC Holdings plc and Southwest Airlines, you can compare the effects of market volatilities on HSBC Holdings 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 HSBC Holdings with a short position of Southwest Airlines. Check out your portfolio center. Please also check ongoing floating volatility patterns of HSBC Holdings and Southwest Airlines.
Diversification Opportunities for HSBC Holdings and Southwest Airlines
0.84 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between HSBC and Southwest is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding HSBC Holdings plc and Southwest Airlines in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Southwest Airlines and HSBC Holdings 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 HSBC Holdings plc 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 HSBC Holdings i.e., HSBC Holdings and Southwest Airlines go up and down completely randomly.
Pair Corralation between HSBC Holdings and Southwest Airlines
Assuming the 90 days trading horizon HSBC Holdings plc is expected to generate 0.65 times more return on investment than Southwest Airlines. However, HSBC Holdings plc is 1.54 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 0.04 per unit of risk. If you would invest 57,654 in HSBC Holdings plc on September 2, 2024 and sell it today you would earn a total of 35,846 from holding HSBC Holdings plc or generate 62.17% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
HSBC Holdings plc vs. Southwest Airlines
Performance |
| Timeline |
| HSBC Holdings plc |
| Southwest Airlines |
HSBC Holdings and Southwest Airlines Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with HSBC Holdings and Southwest Airlines
The main advantage of trading using opposite HSBC Holdings and Southwest Airlines positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if HSBC Holdings 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.| HSBC Holdings vs. First Majestic Silver | HSBC Holdings vs. United States Steel | HSBC Holdings vs. Cognizant Technology Solutions | HSBC Holdings vs. Taiwan Semiconductor Manufacturing |
| Southwest Airlines vs. Martin Marietta Materials | Southwest Airlines vs. Grupo Sports World | Southwest Airlines vs. Taiwan Semiconductor Manufacturing | Southwest Airlines vs. Cognizant Technology Solutions |
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 Search module to search for actively traded equities including funds and ETFs from over 30 global markets.
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