Correlation Between Southwest Airlines and NI Holdings
Can any of the company-specific risk be diversified away by investing in both Southwest Airlines and NI Holdings 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 NI Holdings into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Southwest Airlines and NI Holdings, you can compare the effects of market volatilities on Southwest Airlines and NI Holdings 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 NI Holdings. Check out your portfolio center. Please also check ongoing floating volatility patterns of Southwest Airlines and NI Holdings.
Diversification Opportunities for Southwest Airlines and NI Holdings
0.7 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Southwest and NODK is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Southwest Airlines and NI Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NI Holdings 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 NI Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NI Holdings has no effect on the direction of Southwest Airlines i.e., Southwest Airlines and NI Holdings go up and down completely randomly.
Pair Corralation between Southwest Airlines and NI Holdings
Considering the 90-day investment horizon Southwest Airlines is expected to generate 1.11 times more return on investment than NI Holdings. However, Southwest Airlines is 1.11 times more volatile than NI Holdings. It trades about 0.19 of its potential returns per unit of risk. NI Holdings is currently generating about 0.13 per unit of risk. If you would invest 3,061 in Southwest Airlines on September 2, 2024 and sell it today you would earn a total of 175.00 from holding Southwest Airlines or generate 5.72% 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. NI Holdings
Performance |
| Timeline |
| Southwest Airlines |
| NI Holdings |
Southwest Airlines and NI Holdings Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Southwest Airlines and NI Holdings
The main advantage of trading using opposite Southwest Airlines and NI Holdings positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Southwest Airlines position performs unexpectedly, NI Holdings 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 NI Holdings will offset losses from the drop in NI Holdings' 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.
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