Correlation Between QBE Insurance and Southwest Airlines
Can any of the company-specific risk be diversified away by investing in both QBE Insurance 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 QBE Insurance and Southwest Airlines into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between QBE Insurance Group and Southwest Airlines Co, you can compare the effects of market volatilities on QBE Insurance 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 QBE Insurance with a short position of Southwest Airlines. Check out your portfolio center. Please also check ongoing floating volatility patterns of QBE Insurance and Southwest Airlines.
Diversification Opportunities for QBE Insurance and Southwest Airlines
0.9 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between QBE and Southwest is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding QBE Insurance Group and Southwest Airlines Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Southwest Airlines and QBE Insurance 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 QBE Insurance Group 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 QBE Insurance i.e., QBE Insurance and Southwest Airlines go up and down completely randomly.
Pair Corralation between QBE Insurance and Southwest Airlines
Assuming the 90 days horizon QBE Insurance is expected to generate 1.68 times less return on investment than Southwest Airlines. But when comparing it to its historical volatility, QBE Insurance Group is 1.45 times less risky than Southwest Airlines. It trades about 0.18 of its potential returns per unit of risk. Southwest Airlines Co is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest 2,960 in Southwest Airlines Co on September 12, 2024 and sell it today you would earn a total of 222.00 from holding Southwest Airlines Co or generate 7.5% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
QBE Insurance Group vs. Southwest Airlines Co
Performance |
| Timeline |
| QBE Insurance Group |
| Southwest Airlines |
QBE Insurance and Southwest Airlines Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with QBE Insurance and Southwest Airlines
The main advantage of trading using opposite QBE Insurance and Southwest Airlines positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if QBE Insurance 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.| QBE Insurance vs. Insurance Australia Group | QBE Insurance vs. Superior Plus Corp | QBE Insurance vs. SIVERS SEMICONDUCTORS AB | QBE Insurance vs. CHINA HUARONG ENERHD 50 |
| Southwest Airlines vs. RYANAIR HLDGS ADR | Southwest Airlines vs. Ryanair Holdings plc | Southwest Airlines vs. Superior Plus Corp | Southwest Airlines vs. SIVERS SEMICONDUCTORS AB |
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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.
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