Correlation Between Southwest Airlines and Gilead Sciences
Can any of the company-specific risk be diversified away by investing in both Southwest Airlines and Gilead Sciences 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 Gilead Sciences into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Southwest Airlines and Gilead Sciences, you can compare the effects of market volatilities on Southwest Airlines and Gilead Sciences 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 Gilead Sciences. Check out your portfolio center. Please also check ongoing floating volatility patterns of Southwest Airlines and Gilead Sciences.
Diversification Opportunities for Southwest Airlines and Gilead Sciences
0.81 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Southwest and Gilead is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Southwest Airlines and Gilead Sciences in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gilead Sciences 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 Gilead Sciences. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gilead Sciences has no effect on the direction of Southwest Airlines i.e., Southwest Airlines and Gilead Sciences go up and down completely randomly.
Pair Corralation between Southwest Airlines and Gilead Sciences
Assuming the 90 days trading horizon Southwest Airlines is expected to generate 23.33 times less return on investment than Gilead Sciences. In addition to that, Southwest Airlines is 1.26 times more volatile than Gilead Sciences. It trades about 0.0 of its total potential returns per unit of risk. Gilead Sciences is currently generating about 0.03 per unit of volatility. If you would invest 160,407 in Gilead Sciences on September 2, 2024 and sell it today you would earn a total of 28,833 from holding Gilead Sciences or generate 17.97% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Southwest Airlines vs. Gilead Sciences
Performance |
| Timeline |
| Southwest Airlines |
| Gilead Sciences |
Southwest Airlines and Gilead Sciences Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Southwest Airlines and Gilead Sciences
The main advantage of trading using opposite Southwest Airlines and Gilead Sciences positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Southwest Airlines position performs unexpectedly, Gilead Sciences 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 Gilead Sciences will offset losses from the drop in Gilead Sciences' long position.| 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.
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