Correlation Between Raytheon Technologies and Southwest Airlines
Can any of the company-specific risk be diversified away by investing in both Raytheon Technologies 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 Raytheon Technologies and Southwest Airlines into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Raytheon Technologies and Southwest Airlines Co, you can compare the effects of market volatilities on Raytheon Technologies 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 Raytheon Technologies with a short position of Southwest Airlines. Check out your portfolio center. Please also check ongoing floating volatility patterns of Raytheon Technologies and Southwest Airlines.
Diversification Opportunities for Raytheon Technologies and Southwest Airlines
0.74 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Raytheon and Southwest is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Raytheon Technologies and Southwest Airlines Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Southwest Airlines and Raytheon Technologies 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 Raytheon Technologies 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 Raytheon Technologies i.e., Raytheon Technologies and Southwest Airlines go up and down completely randomly.
Pair Corralation between Raytheon Technologies and Southwest Airlines
Assuming the 90 days trading horizon Raytheon Technologies is expected to generate 0.65 times more return on investment than Southwest Airlines. However, Raytheon Technologies is 1.54 times less risky than Southwest Airlines. It trades about 0.05 of its potential returns per unit of risk. Southwest Airlines Co is currently generating about 0.0 per unit of risk. If you would invest 8,556 in Raytheon Technologies on September 3, 2024 and sell it today you would earn a total of 3,564 from holding Raytheon Technologies or generate 41.65% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 76.94% |
| Values | Daily Returns |
Raytheon Technologies vs. Southwest Airlines Co
Performance |
| Timeline |
| Raytheon Technologies |
| Southwest Airlines |
Raytheon Technologies and Southwest Airlines Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Raytheon Technologies and Southwest Airlines
The main advantage of trading using opposite Raytheon Technologies and Southwest Airlines positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Raytheon Technologies 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.| Raytheon Technologies vs. Lockheed Martin | Raytheon Technologies vs. Northrop Grumman | Raytheon Technologies vs. General Dynamics |
| Southwest Airlines vs. MAHLE Metal Leve | Southwest Airlines vs. Tres Tentos Agroindustrial | Southwest Airlines vs. Metalurgica Gerdau SA | Southwest Airlines vs. Multilaser Industrial SA |
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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..
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