Correlation Between Southwest Airlines and Stepan
Can any of the company-specific risk be diversified away by investing in both Southwest Airlines and Stepan 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 Stepan into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Southwest Airlines and Stepan Company, you can compare the effects of market volatilities on Southwest Airlines and Stepan 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 Stepan. Check out your portfolio center. Please also check ongoing floating volatility patterns of Southwest Airlines and Stepan.
Diversification Opportunities for Southwest Airlines and Stepan
0.12 | Correlation Coefficient |
Average diversification
The 3 months correlation between Southwest and Stepan is 0.12. Overlapping area represents the amount of risk that can be diversified away by holding Southwest Airlines and Stepan Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Stepan Company 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 Stepan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Stepan Company has no effect on the direction of Southwest Airlines i.e., Southwest Airlines and Stepan go up and down completely randomly.
Pair Corralation between Southwest Airlines and Stepan
Considering the 90-day investment horizon Southwest Airlines is expected to generate 1.38 times less return on investment than Stepan. But when comparing it to its historical volatility, Southwest Airlines is 1.15 times less risky than Stepan. It trades about 0.09 of its potential returns per unit of risk. Stepan Company is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest 7,273 in Stepan Company on August 24, 2024 and sell it today you would earn a total of 412.00 from holding Stepan Company or generate 5.66% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Southwest Airlines vs. Stepan Company
Performance |
| Timeline |
| Southwest Airlines |
| Stepan Company |
Southwest Airlines and Stepan Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Southwest Airlines and Stepan
The main advantage of trading using opposite Southwest Airlines and Stepan positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Southwest Airlines position performs unexpectedly, Stepan 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 Stepan will offset losses from the drop in Stepan'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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.
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