Correlation Between Southwest Airlines and MGM Resorts
Can any of the company-specific risk be diversified away by investing in both Southwest Airlines and MGM Resorts 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 MGM Resorts into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Southwest Airlines and MGM Resorts International, you can compare the effects of market volatilities on Southwest Airlines and MGM Resorts 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 MGM Resorts. Check out your portfolio center. Please also check ongoing floating volatility patterns of Southwest Airlines and MGM Resorts.
Diversification Opportunities for Southwest Airlines and MGM Resorts
0.29 | Correlation Coefficient |
Modest diversification
The 3 months correlation between Southwest and MGM is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding Southwest Airlines and MGM Resorts International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MGM Resorts International 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 MGM Resorts. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MGM Resorts International has no effect on the direction of Southwest Airlines i.e., Southwest Airlines and MGM Resorts go up and down completely randomly.
Pair Corralation between Southwest Airlines and MGM Resorts
Assuming the 90 days trading horizon Southwest Airlines is expected to generate 1.34 times more return on investment than MGM Resorts. However, Southwest Airlines is 1.34 times more volatile than MGM Resorts International. It trades about 0.05 of its potential returns per unit of risk. MGM Resorts International is currently generating about 0.01 per unit of risk. If you would invest 67,000 in Southwest Airlines on September 12, 2024 and sell it today you would earn a total of 1,300 from holding Southwest Airlines or generate 1.94% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Southwest Airlines vs. MGM Resorts International
Performance |
| Timeline |
| Southwest Airlines |
| MGM Resorts International |
Southwest Airlines and MGM Resorts Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Southwest Airlines and MGM Resorts
The main advantage of trading using opposite Southwest Airlines and MGM Resorts positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Southwest Airlines position performs unexpectedly, MGM Resorts 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 MGM Resorts will offset losses from the drop in MGM Resorts' long position.| Southwest Airlines vs. Delta Air Lines | Southwest Airlines vs. United Airlines Holdings | Southwest Airlines vs. Controladora Vuela Compaa |
| MGM Resorts vs. FibraHotel | MGM Resorts vs. Delta Air Lines | MGM Resorts vs. Grupo Hotelero Santa | MGM Resorts vs. Southwest Airlines |
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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.
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