Correlation Between Southwest Airlines and GP Investments
Can any of the company-specific risk be diversified away by investing in both Southwest Airlines and GP Investments 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 GP Investments 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 GP Investments, you can compare the effects of market volatilities on Southwest Airlines and GP Investments 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 GP Investments. Check out your portfolio center. Please also check ongoing floating volatility patterns of Southwest Airlines and GP Investments.
Diversification Opportunities for Southwest Airlines and GP Investments
-0.52 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Southwest and GPIV33 is -0.52. Overlapping area represents the amount of risk that can be diversified away by holding Southwest Airlines Co and GP Investments in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GP Investments 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 GP Investments. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GP Investments has no effect on the direction of Southwest Airlines i.e., Southwest Airlines and GP Investments go up and down completely randomly.
Pair Corralation between Southwest Airlines and GP Investments
Assuming the 90 days trading horizon Southwest Airlines Co is expected to under-perform the GP Investments. But the stock apears to be less risky and, when comparing its historical volatility, Southwest Airlines Co is 1.12 times less risky than GP Investments. The stock trades about 0.0 of its potential returns per unit of risk. The GP Investments is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest 285.00 in GP Investments on August 30, 2024 and sell it today you would earn a total of 108.00 from holding GP Investments or generate 37.89% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 74.24% |
| Values | Daily Returns |
Southwest Airlines Co vs. GP Investments
Performance |
| Timeline |
| Southwest Airlines |
| GP Investments |
Southwest Airlines and GP Investments Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Southwest Airlines and GP Investments
The main advantage of trading using opposite Southwest Airlines and GP Investments positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Southwest Airlines position performs unexpectedly, GP Investments 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 GP Investments will offset losses from the drop in GP Investments' long position.The idea behind Southwest Airlines Co and GP Investments 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.| GP Investments vs. Global X Funds | GP Investments vs. American Airlines Group | GP Investments vs. Southwest Airlines Co | GP Investments vs. Unity Software |
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 Anywhere module to track or share privately all of your investments from the convenience of any device.
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