Correlation Between Southwest Airlines and Best Buy
Can any of the company-specific risk be diversified away by investing in both Southwest Airlines and Best Buy 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 Southwest Airlines and Best Buy into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Southwest Airlines and Best Buy Co, you can compare the effects of market volatilities on Southwest Airlines and Best Buy 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 Southwest Airlines with a short position of Best Buy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Southwest Airlines and Best Buy.
Diversification Opportunities for Southwest Airlines and Best Buy
-0.15 | Correlation Coefficient |
Good diversification
The 3 months correlation between Southwest and Best is -0.15. Overlapping area represents the amount of risk that can be diversified away by holding Southwest Airlines and Best Buy Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Best Buy and Southwest Airlines 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 Southwest Airlines are associated (or correlated) with Best Buy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Best Buy has no effect on the direction of Southwest Airlines i.e., Southwest Airlines and Best Buy go up and down completely randomly.
Pair Corralation between Southwest Airlines and Best Buy
Assuming the 90 days trading horizon Southwest Airlines is expected to generate 1.15 times more return on investment than Best Buy. However, Southwest Airlines is 1.15 times more volatile than Best Buy Co. It trades about -0.07 of its potential returns per unit of risk. Best Buy Co is currently generating about -0.2 per unit of risk. If you would invest 69,050 in Southwest Airlines on November 4, 2024 and sell it today you would lose (1,658) from holding Southwest Airlines or give up 2.4% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Southwest Airlines vs. Best Buy Co
Performance |
| Timeline |
| Southwest Airlines |
| Best Buy |
Southwest Airlines and Best Buy Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Southwest Airlines and Best Buy
The main advantage of trading using opposite Southwest Airlines and Best Buy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Southwest Airlines position performs unexpectedly, Best Buy 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 Best Buy will offset losses from the drop in Best Buy's long position.| Southwest Airlines vs. UnitedHealth Group Incorporated | Southwest Airlines vs. First Majestic Silver | Southwest Airlines vs. Deutsche Bank Aktiengesellschaft | Southwest Airlines vs. Capital One Financial |
| Best Buy vs. Grupo Industrial Saltillo | Best Buy vs. Verizon Communications | Best Buy vs. Lloyds Banking Group | Best Buy vs. Costco Wholesale |
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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.
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