Correlation Between Southwest Airlines and United Parcel
Can any of the company-specific risk be diversified away by investing in both Southwest Airlines and United Parcel 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 United Parcel into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Southwest Airlines and United Parcel Service, you can compare the effects of market volatilities on Southwest Airlines and United Parcel 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 United Parcel. Check out your portfolio center. Please also check ongoing floating volatility patterns of Southwest Airlines and United Parcel.
Diversification Opportunities for Southwest Airlines and United Parcel
0.79 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Southwest and United is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Southwest Airlines and United Parcel Service in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on United Parcel Service 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 United Parcel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of United Parcel Service has no effect on the direction of Southwest Airlines i.e., Southwest Airlines and United Parcel go up and down completely randomly.
Pair Corralation between Southwest Airlines and United Parcel
Assuming the 90 days trading horizon Southwest Airlines is expected to generate 1.11 times less return on investment than United Parcel. In addition to that, Southwest Airlines is 1.57 times more volatile than United Parcel Service. It trades about 0.13 of its total potential returns per unit of risk. United Parcel Service is currently generating about 0.23 per unit of volatility. If you would invest 266,668 in United Parcel Service on August 31, 2024 and sell it today you would earn a total of 13,332 from holding United Parcel Service or generate 5.0% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Southwest Airlines vs. United Parcel Service
Performance |
| Timeline |
| Southwest Airlines |
| United Parcel Service |
Southwest Airlines and United Parcel Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Southwest Airlines and United Parcel
The main advantage of trading using opposite Southwest Airlines and United Parcel positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Southwest Airlines position performs unexpectedly, United Parcel 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 United Parcel will offset losses from the drop in United Parcel's long position.| Southwest Airlines vs. Delta Air Lines | Southwest Airlines vs. United Airlines Holdings | Southwest Airlines vs. The Select Sector | Southwest Airlines vs. Promotora y Operadora |
| United Parcel vs. Southwest Airlines | United Parcel vs. Cognizant Technology Solutions | United Parcel vs. Deutsche Bank Aktiengesellschaft | United Parcel vs. United Airlines Holdings |
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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.
Other Complementary Tools
| Equity Search Search for actively traded equities including funds and ETFs from over 30 global markets | |
| Funds Screener Find actively-traded funds from around the world traded on over 30 global exchanges | |
| Portfolio Diagnostics Use generated alerts and portfolio events aggregator to diagnose current holdings | |
| Positions Ratings Determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance | |
| Pair Correlation Compare performance and examine fundamental relationship between any two equity instruments |