Correlation Between Southwest Airlines and Deutsche Lufthansa
Can any of the company-specific risk be diversified away by investing in both Southwest Airlines and Deutsche Lufthansa 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 Deutsche Lufthansa into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Southwest Airlines and Deutsche Lufthansa AG, you can compare the effects of market volatilities on Southwest Airlines and Deutsche Lufthansa 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 Deutsche Lufthansa. Check out your portfolio center. Please also check ongoing floating volatility patterns of Southwest Airlines and Deutsche Lufthansa.
Diversification Opportunities for Southwest Airlines and Deutsche Lufthansa
-0.35 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Southwest and Deutsche is -0.35. Overlapping area represents the amount of risk that can be diversified away by holding Southwest Airlines and Deutsche Lufthansa AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Deutsche Lufthansa 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 Deutsche Lufthansa. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Deutsche Lufthansa has no effect on the direction of Southwest Airlines i.e., Southwest Airlines and Deutsche Lufthansa go up and down completely randomly.
Pair Corralation between Southwest Airlines and Deutsche Lufthansa
Considering the 90-day investment horizon Southwest Airlines is expected to generate 0.61 times more return on investment than Deutsche Lufthansa. However, Southwest Airlines is 1.65 times less risky than Deutsche Lufthansa. It trades about 0.0 of its potential returns per unit of risk. Deutsche Lufthansa AG is currently generating about -0.01 per unit of risk. If you would invest 3,351 in Southwest Airlines on November 2, 2024 and sell it today you would lose (262.50) from holding Southwest Airlines or give up 7.83% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 81.78% |
| Values | Daily Returns |
Southwest Airlines vs. Deutsche Lufthansa AG
Performance |
| Timeline |
| Southwest Airlines |
| Deutsche Lufthansa |
Southwest Airlines and Deutsche Lufthansa Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Southwest Airlines and Deutsche Lufthansa
The main advantage of trading using opposite Southwest Airlines and Deutsche Lufthansa positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Southwest Airlines position performs unexpectedly, Deutsche Lufthansa 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 Deutsche Lufthansa will offset losses from the drop in Deutsche Lufthansa'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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.
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