Correlation Between Novartis and Southwest Airlines
Can any of the company-specific risk be diversified away by investing in both Novartis and Southwest 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 Novartis and Southwest Airlines into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Novartis AG and Southwest Airlines, you can compare the effects of market volatilities on Novartis and Southwest 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 Novartis with a short position of Southwest Airlines. Check out your portfolio center. Please also check ongoing floating volatility patterns of Novartis and Southwest Airlines.
Diversification Opportunities for Novartis and Southwest Airlines
0.08 | Correlation Coefficient |
Significant diversification
The 3 months correlation between Novartis and Southwest is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding Novartis AG and Southwest Airlines in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Southwest Airlines and Novartis 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 Novartis AG are associated (or correlated) with Southwest Airlines. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Southwest Airlines has no effect on the direction of Novartis i.e., Novartis and Southwest Airlines go up and down completely randomly.
Pair Corralation between Novartis and Southwest Airlines
Assuming the 90 days trading horizon Novartis AG is expected to under-perform the Southwest Airlines. But the stock apears to be less risky and, when comparing its historical volatility, Novartis AG is 2.49 times less risky than Southwest Airlines. The stock trades about -0.05 of its potential returns per unit of risk. The Southwest Airlines is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest 59,363 in Southwest Airlines on December 10, 2024 and sell it today you would lose (2,040) from holding Southwest Airlines or give up 3.44% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Novartis AG vs. Southwest Airlines
Performance |
| Timeline |
| Novartis AG |
| Southwest Airlines |
Novartis and Southwest Airlines Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Novartis and Southwest Airlines
The main advantage of trading using opposite Novartis and Southwest Airlines positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Novartis position performs unexpectedly, Southwest 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 Southwest Airlines will offset losses from the drop in Southwest Airlines' long position.| Novartis vs. Micron Technology | Novartis vs. DXC Technology | Novartis vs. Ameriprise Financial | Novartis vs. The Bank of |
| Southwest Airlines vs. McEwen Mining | Southwest Airlines vs. Samsung Electronics Co | Southwest Airlines vs. Lloyds Banking Group | Southwest Airlines vs. Ameriprise Financial |
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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.
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