Correlation Between Southwest Airlines and Verizon Communications
Can any of the company-specific risk be diversified away by investing in both Southwest Airlines and Verizon 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 Verizon 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 Verizon Communications, you can compare the effects of market volatilities on Southwest Airlines and Verizon 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 Verizon Communications. Check out your portfolio center. Please also check ongoing floating volatility patterns of Southwest Airlines and Verizon Communications.
Diversification Opportunities for Southwest Airlines and Verizon Communications
0.5 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Southwest and Verizon is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Southwest Airlines Co and Verizon Communications in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Verizon 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 Verizon Communications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Verizon Communications has no effect on the direction of Southwest Airlines i.e., Southwest Airlines and Verizon Communications go up and down completely randomly.
Pair Corralation between Southwest Airlines and Verizon Communications
Assuming the 90 days trading horizon Southwest Airlines Co is expected to under-perform the Verizon Communications. In addition to that, Southwest Airlines is 1.01 times more volatile than Verizon Communications. It trades about -0.22 of its total potential returns per unit of risk. Verizon Communications is currently generating about 0.05 per unit of volatility. If you would invest 4,062 in Verizon Communications on August 24, 2024 and sell it today you would earn a total of 50.00 from holding Verizon Communications or generate 1.23% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Southwest Airlines Co vs. Verizon Communications
Performance |
| Timeline |
| Southwest Airlines |
| Verizon Communications |
Southwest Airlines and Verizon Communications Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Southwest Airlines and Verizon Communications
The main advantage of trading using opposite Southwest Airlines and Verizon Communications positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Southwest Airlines position performs unexpectedly, Verizon 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 Verizon Communications will offset losses from the drop in Verizon Communications' long position.| Southwest Airlines vs. Delta Air Lines | Southwest Airlines vs. United Airlines Holdings | Southwest Airlines vs. Gol Linhas Areas |
| Verizon Communications vs. Costco Wholesale | Verizon Communications vs. Bread Financial Holdings | Verizon Communications vs. Charter Communications | Verizon Communications vs. Bemobi Mobile Tech |
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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.
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