Correlation Between Southwest Airlines and Bread Financial
Can any of the company-specific risk be diversified away by investing in both Southwest Airlines and Bread Financial 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 Bread Financial into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Southwest Airlines Co and Bread Financial Holdings, you can compare the effects of market volatilities on Southwest Airlines and Bread Financial 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 Bread Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Southwest Airlines and Bread Financial.
Diversification Opportunities for Southwest Airlines and Bread Financial
0.33 | Correlation Coefficient |
Weak diversification
The 3 months correlation between Southwest and Bread is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding Southwest Airlines Co and Bread Financial Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bread Financial Holdings 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 Co are associated (or correlated) with Bread Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bread Financial Holdings has no effect on the direction of Southwest Airlines i.e., Southwest Airlines and Bread Financial go up and down completely randomly.
Pair Corralation between Southwest Airlines and Bread Financial
Assuming the 90 days trading horizon Southwest Airlines Co is expected to under-perform the Bread Financial. But the stock apears to be less risky and, when comparing its historical volatility, Southwest Airlines Co is 1.27 times less risky than Bread Financial. The stock trades about -0.01 of its potential returns per unit of risk. The Bread Financial Holdings is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest 5,160 in Bread Financial Holdings on September 4, 2024 and sell it today you would earn a total of 4,070 from holding Bread Financial Holdings or generate 78.88% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 75.78% |
| Values | Daily Returns |
Southwest Airlines Co vs. Bread Financial Holdings
Performance |
| Timeline |
| Southwest Airlines |
| Bread Financial Holdings |
Southwest Airlines and Bread Financial Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Southwest Airlines and Bread Financial
The main advantage of trading using opposite Southwest Airlines and Bread Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Southwest Airlines position performs unexpectedly, Bread Financial 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 Bread Financial will offset losses from the drop in Bread Financial's long position.| Southwest Airlines vs. Take Two Interactive Software | Southwest Airlines vs. BIONTECH SE DRN | Southwest Airlines vs. Micron Technology | Southwest Airlines vs. Broadcom |
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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..
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