Correlation Between Southwest Airlines and Unity Software
Can any of the company-specific risk be diversified away by investing in both Southwest Airlines and Unity Software 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 Unity Software 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 Unity Software, you can compare the effects of market volatilities on Southwest Airlines and Unity Software 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 Unity Software. Check out your portfolio center. Please also check ongoing floating volatility patterns of Southwest Airlines and Unity Software.
Diversification Opportunities for Southwest Airlines and Unity Software
0.51 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Southwest and Unity is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding Southwest Airlines Co and Unity Software in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Unity Software 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 Unity Software. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Unity Software has no effect on the direction of Southwest Airlines i.e., Southwest Airlines and Unity Software go up and down completely randomly.
Pair Corralation between Southwest Airlines and Unity Software
Assuming the 90 days trading horizon Southwest Airlines Co is expected to under-perform the Unity Software. But the stock apears to be less risky and, when comparing its historical volatility, Southwest Airlines Co is 1.66 times less risky than Unity Software. The stock trades about 0.0 of its potential returns per unit of risk. The Unity Software is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest 897.00 in Unity Software on August 30, 2024 and sell it today you would lose (198.00) from holding Unity Software or give up 22.07% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 73.35% |
| Values | Daily Returns |
Southwest Airlines Co vs. Unity Software
Performance |
| Timeline |
| Southwest Airlines |
| Unity Software |
Southwest Airlines and Unity Software Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Southwest Airlines and Unity Software
The main advantage of trading using opposite Southwest Airlines and Unity Software positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Southwest Airlines position performs unexpectedly, Unity Software 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 Unity Software will offset losses from the drop in Unity Software's long position.The idea behind Southwest Airlines Co and Unity Software 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.| Unity Software vs. Tyson Foods | Unity Software vs. Take Two Interactive Software | Unity Software vs. Spotify Technology SA | Unity Software vs. Align Technology |
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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.
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