Correlation Between Southwest Airlines and US Bancorp
Can any of the company-specific risk be diversified away by investing in both Southwest Airlines and US Bancorp 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 US Bancorp into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Southwest Airlines and US Bancorp, you can compare the effects of market volatilities on Southwest Airlines and US Bancorp 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 US Bancorp. Check out your portfolio center. Please also check ongoing floating volatility patterns of Southwest Airlines and US Bancorp.
Diversification Opportunities for Southwest Airlines and US Bancorp
0.81 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Southwest and USB is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Southwest Airlines and US Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on US Bancorp 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 US Bancorp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of US Bancorp has no effect on the direction of Southwest Airlines i.e., Southwest Airlines and US Bancorp go up and down completely randomly.
Pair Corralation between Southwest Airlines and US Bancorp
Assuming the 90 days trading horizon Southwest Airlines is expected to generate 1.18 times more return on investment than US Bancorp. However, Southwest Airlines is 1.18 times more volatile than US Bancorp. It trades about 0.18 of its potential returns per unit of risk. US Bancorp is currently generating about 0.11 per unit of risk. If you would invest 62,200 in Southwest Airlines on September 3, 2024 and sell it today you would earn a total of 3,520 from holding Southwest Airlines or generate 5.66% 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. US Bancorp
Performance |
| Timeline |
| Southwest Airlines |
| US Bancorp |
Southwest Airlines and US Bancorp Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Southwest Airlines and US Bancorp
The main advantage of trading using opposite Southwest Airlines and US Bancorp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Southwest Airlines position performs unexpectedly, US Bancorp 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 US Bancorp will offset losses from the drop in US Bancorp's long position.| Southwest Airlines vs. Delta Air Lines | Southwest Airlines vs. JetBlue Airways | Southwest Airlines vs. Controladora Vuela Compaa | Southwest Airlines vs. Grupo Aeromxico SAB |
| US Bancorp vs. First Majestic Silver | US Bancorp vs. Genworth Financial | US Bancorp vs. DXC Technology | US Bancorp 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.
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