Correlation Between Southwest Airlines and Spirit Airlines
Can any of the company-specific risk be diversified away by investing in both Southwest Airlines and Spirit Airlines 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 Spirit Airlines into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Southwest Airlines and Spirit Airlines, you can compare the effects of market volatilities on Southwest Airlines and Spirit Airlines 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 Spirit Airlines. Check out your portfolio center. Please also check ongoing floating volatility patterns of Southwest Airlines and Spirit Airlines.
Diversification Opportunities for Southwest Airlines and Spirit Airlines
-0.33 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Southwest and Spirit is -0.33. Overlapping area represents the amount of risk that can be diversified away by holding Southwest Airlines and Spirit Airlines in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Spirit Airlines 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 Spirit Airlines. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Spirit Airlines has no effect on the direction of Southwest Airlines i.e., Southwest Airlines and Spirit Airlines go up and down completely randomly.
Pair Corralation between Southwest Airlines and Spirit Airlines
Considering the 90-day investment horizon Southwest Airlines is expected to generate 0.11 times more return on investment than Spirit Airlines. However, Southwest Airlines is 9.49 times less risky than Spirit Airlines. It trades about 0.12 of its potential returns per unit of risk. Spirit Airlines is currently generating about -0.1 per unit of risk. If you would invest 2,803 in Southwest Airlines on August 26, 2024 and sell it today you would earn a total of 394.00 from holding Southwest Airlines or generate 14.06% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 95.38% |
| Values | Daily Returns |
Southwest Airlines vs. Spirit Airlines
Performance |
| Timeline |
| Southwest Airlines |
| Spirit Airlines |
Southwest Airlines and Spirit Airlines Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Southwest Airlines and Spirit Airlines
The main advantage of trading using opposite Southwest Airlines and Spirit Airlines positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Southwest Airlines position performs unexpectedly, Spirit Airlines 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 Spirit Airlines will offset losses from the drop in Spirit Airlines' 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 |
| Spirit Airlines vs. American Airlines Group | Spirit Airlines vs. Delta Air Lines | Spirit Airlines vs. Southwest Airlines | Spirit Airlines vs. United Airlines Holdings |
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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.
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