Correlation Between Southwest Airlines and Diageo PLC
Can any of the company-specific risk be diversified away by investing in both Southwest Airlines and Diageo PLC 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 Diageo PLC into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Southwest Airlines and Diageo PLC ADR, you can compare the effects of market volatilities on Southwest Airlines and Diageo PLC 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 Diageo PLC. Check out your portfolio center. Please also check ongoing floating volatility patterns of Southwest Airlines and Diageo PLC.
Diversification Opportunities for Southwest Airlines and Diageo PLC
-0.64 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Southwest and Diageo is -0.64. Overlapping area represents the amount of risk that can be diversified away by holding Southwest Airlines and Diageo PLC ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Diageo PLC ADR 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 Diageo PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Diageo PLC ADR has no effect on the direction of Southwest Airlines i.e., Southwest Airlines and Diageo PLC go up and down completely randomly.
Pair Corralation between Southwest Airlines and Diageo PLC
Considering the 90-day investment horizon Southwest Airlines is expected to generate 1.62 times more return on investment than Diageo PLC. However, Southwest Airlines is 1.62 times more volatile than Diageo PLC ADR. It trades about 0.0 of its potential returns per unit of risk. Diageo PLC ADR is currently generating about -0.05 per unit of risk. If you would invest 3,609 in Southwest Airlines on September 3, 2024 and sell it today you would lose (373.00) from holding Southwest Airlines or give up 10.34% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Southwest Airlines vs. Diageo PLC ADR
Performance |
| Timeline |
| Southwest Airlines |
| Diageo PLC ADR |
Southwest Airlines and Diageo PLC Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Southwest Airlines and Diageo PLC
The main advantage of trading using opposite Southwest Airlines and Diageo PLC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Southwest Airlines position performs unexpectedly, Diageo PLC 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 Diageo PLC will offset losses from the drop in Diageo PLC's long position.| Southwest Airlines vs. United Airlines Holdings | Southwest Airlines vs. American Airlines Group | Southwest Airlines vs. JetBlue Airways Corp | Southwest Airlines vs. Delta Air Lines |
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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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.
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