Correlation Between Southwest Airlines and New Oriental
Can any of the company-specific risk be diversified away by investing in both Southwest Airlines and New Oriental 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 New Oriental into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Southwest Airlines and New Oriental Education, you can compare the effects of market volatilities on Southwest Airlines and New Oriental 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 New Oriental. Check out your portfolio center. Please also check ongoing floating volatility patterns of Southwest Airlines and New Oriental.
Diversification Opportunities for Southwest Airlines and New Oriental
-0.15 | Correlation Coefficient |
Good diversification
The 3 months correlation between Southwest and New is -0.15. Overlapping area represents the amount of risk that can be diversified away by holding Southwest Airlines and New Oriental Education in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on New Oriental Education 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 New Oriental. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of New Oriental Education has no effect on the direction of Southwest Airlines i.e., Southwest Airlines and New Oriental go up and down completely randomly.
Pair Corralation between Southwest Airlines and New Oriental
Assuming the 90 days trading horizon Southwest Airlines is expected to generate 3.95 times more return on investment than New Oriental. However, Southwest Airlines is 3.95 times more volatile than New Oriental Education. It trades about 0.23 of its potential returns per unit of risk. New Oriental Education is currently generating about 0.18 per unit of risk. If you would invest 58,433 in Southwest Airlines on August 25, 2024 and sell it today you would earn a total of 5,567 from holding Southwest Airlines or generate 9.53% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Southwest Airlines vs. New Oriental Education
Performance |
| Timeline |
| Southwest Airlines |
| New Oriental Education |
Southwest Airlines and New Oriental Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Southwest Airlines and New Oriental
The main advantage of trading using opposite Southwest Airlines and New Oriental positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Southwest Airlines position performs unexpectedly, New Oriental 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 New Oriental will offset losses from the drop in New Oriental's long position.| Southwest Airlines vs. Grupo Sports World | Southwest Airlines vs. DXC Technology | Southwest Airlines vs. Micron Technology | Southwest Airlines vs. McEwen Mining |
| New Oriental vs. Deutsche Bank Aktiengesellschaft | New Oriental vs. Cognizant Technology Solutions | New Oriental vs. United States Steel | New Oriental vs. The Bank of |
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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