Correlation Between Southwest Airlines and Expedia
Can any of the company-specific risk be diversified away by investing in both Southwest Airlines and Expedia 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 Expedia 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 Expedia Group, you can compare the effects of market volatilities on Southwest Airlines and Expedia 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 Expedia. Check out your portfolio center. Please also check ongoing floating volatility patterns of Southwest Airlines and Expedia.
Diversification Opportunities for Southwest Airlines and Expedia
0.62 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Southwest and Expedia is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Southwest Airlines Co and Expedia Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Expedia Group 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 Expedia. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Expedia Group has no effect on the direction of Southwest Airlines i.e., Southwest Airlines and Expedia go up and down completely randomly.
Pair Corralation between Southwest Airlines and Expedia
Assuming the 90 days trading horizon Southwest Airlines is expected to generate 7.72 times less return on investment than Expedia. But when comparing it to its historical volatility, Southwest Airlines Co is 1.6 times less risky than Expedia. It trades about 0.07 of its potential returns per unit of risk. Expedia Group is currently generating about 0.32 of returns per unit of risk over similar time horizon. If you would invest 33,031 in Expedia Group on September 3, 2024 and sell it today you would earn a total of 23,753 from holding Expedia Group or generate 71.91% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Southwest Airlines Co vs. Expedia Group
Performance |
| Timeline |
| Southwest Airlines |
| Expedia Group |
Southwest Airlines and Expedia Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Southwest Airlines and Expedia
The main advantage of trading using opposite Southwest Airlines and Expedia positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Southwest Airlines position performs unexpectedly, Expedia 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 Expedia will offset losses from the drop in Expedia's long position.| Southwest Airlines vs. MAHLE Metal Leve | Southwest Airlines vs. Tres Tentos Agroindustrial | Southwest Airlines vs. Metalurgica Gerdau SA | Southwest Airlines vs. Multilaser Industrial SA |
| Expedia vs. BIONTECH SE DRN | Expedia vs. Raytheon Technologies | Expedia vs. Southwest Airlines Co | Expedia vs. Beyond Meat |
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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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