Correlation Between Southwest Airlines and Flex
Can any of the company-specific risk be diversified away by investing in both Southwest Airlines and Flex 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 Flex into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Southwest Airlines and Flex, you can compare the effects of market volatilities on Southwest Airlines and Flex 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 Flex. Check out your portfolio center. Please also check ongoing floating volatility patterns of Southwest Airlines and Flex.
Diversification Opportunities for Southwest Airlines and Flex
0.78 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Southwest and Flex is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Southwest Airlines and Flex in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Flex 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 Flex. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Flex has no effect on the direction of Southwest Airlines i.e., Southwest Airlines and Flex go up and down completely randomly.
Pair Corralation between Southwest Airlines and Flex
Considering the 90-day investment horizon Southwest Airlines is expected to generate 2.28 times less return on investment than Flex. But when comparing it to its historical volatility, Southwest Airlines is 1.71 times less risky than Flex. It trades about 0.21 of its potential returns per unit of risk. Flex is currently generating about 0.28 of returns per unit of risk over similar time horizon. If you would invest 3,525 in Flex on August 27, 2024 and sell it today you would earn a total of 582.00 from holding Flex or generate 16.51% 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. Flex
Performance |
| Timeline |
| Southwest Airlines |
| Flex |
Southwest Airlines and Flex Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Southwest Airlines and Flex
The main advantage of trading using opposite Southwest Airlines and Flex positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Southwest Airlines position performs unexpectedly, Flex 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 Flex will offset losses from the drop in Flex's long position.| Southwest Airlines vs. United Airlines Holdings | Southwest Airlines vs. American Airlines Group | Southwest Airlines vs. JetBlue Airways Corp | Southwest Airlines vs. Spirit 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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.
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