Correlation Between Southwest Airlines and Universal Insurance
Can any of the company-specific risk be diversified away by investing in both Southwest Airlines and Universal Insurance 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 Universal Insurance 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 Universal Insurance Holdings, you can compare the effects of market volatilities on Southwest Airlines and Universal Insurance 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 Universal Insurance. Check out your portfolio center. Please also check ongoing floating volatility patterns of Southwest Airlines and Universal Insurance.
Diversification Opportunities for Southwest Airlines and Universal Insurance
0.61 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Southwest and Universal is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Southwest Airlines Co and Universal Insurance Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Universal Insurance 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 Universal Insurance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Universal Insurance has no effect on the direction of Southwest Airlines i.e., Southwest Airlines and Universal Insurance go up and down completely randomly.
Pair Corralation between Southwest Airlines and Universal Insurance
Assuming the 90 days horizon Southwest Airlines Co is expected to generate 1.34 times more return on investment than Universal Insurance. However, Southwest Airlines is 1.34 times more volatile than Universal Insurance Holdings. It trades about 0.21 of its potential returns per unit of risk. Universal Insurance Holdings is currently generating about 0.1 per unit of risk. If you would invest 2,960 in Southwest Airlines Co on September 12, 2024 and sell it today you would earn a total of 222.00 from holding Southwest Airlines Co or generate 7.5% 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. Universal Insurance Holdings
Performance |
| Timeline |
| Southwest Airlines |
| Universal Insurance |
Southwest Airlines and Universal Insurance Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Southwest Airlines and Universal Insurance
The main advantage of trading using opposite Southwest Airlines and Universal Insurance positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Southwest Airlines position performs unexpectedly, Universal Insurance 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 Universal Insurance will offset losses from the drop in Universal Insurance's long position.| Southwest Airlines vs. RYANAIR HLDGS ADR | Southwest Airlines vs. Ryanair Holdings plc | Southwest Airlines vs. Superior Plus Corp | Southwest Airlines vs. SIVERS SEMICONDUCTORS AB |
| Universal Insurance vs. QBE Insurance Group | Universal Insurance vs. Insurance Australia Group | Universal Insurance vs. Superior Plus Corp | Universal Insurance vs. SIVERS SEMICONDUCTORS AB |
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 Transaction History module to view history of all your transactions and understand their impact on performance.
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