Correlation Between Southwest Airlines and Charter Communications
Can any of the company-specific risk be diversified away by investing in both Southwest Airlines and Charter Communications 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 Charter Communications 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 Charter Communications, you can compare the effects of market volatilities on Southwest Airlines and Charter Communications 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 Charter Communications. Check out your portfolio center. Please also check ongoing floating volatility patterns of Southwest Airlines and Charter Communications.
Diversification Opportunities for Southwest Airlines and Charter Communications
0.3 | Correlation Coefficient |
Weak diversification
The 3 months correlation between Southwest and Charter is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding Southwest Airlines Co and Charter Communications in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Charter Communications 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 Charter Communications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Charter Communications has no effect on the direction of Southwest Airlines i.e., Southwest Airlines and Charter Communications go up and down completely randomly.
Pair Corralation between Southwest Airlines and Charter Communications
Assuming the 90 days trading horizon Southwest Airlines Co is expected to under-perform the Charter Communications. In addition to that, Southwest Airlines is 1.07 times more volatile than Charter Communications. It trades about 0.0 of its total potential returns per unit of risk. Charter Communications is currently generating about 0.02 per unit of volatility. If you would invest 3,248 in Charter Communications on August 28, 2024 and sell it today you would earn a total of 464.00 from holding Charter Communications or generate 14.29% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 73.49% |
| Values | Daily Returns |
Southwest Airlines Co vs. Charter Communications
Performance |
| Timeline |
| Southwest Airlines |
| Charter Communications |
Southwest Airlines and Charter Communications Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Southwest Airlines and Charter Communications
The main advantage of trading using opposite Southwest Airlines and Charter Communications positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Southwest Airlines position performs unexpectedly, Charter Communications 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 Charter Communications will offset losses from the drop in Charter Communications' long position.The idea behind Southwest Airlines Co and Charter Communications pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.
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