Correlation Between Southwest Airlines and Liberty Broadband
Can any of the company-specific risk be diversified away by investing in both Southwest Airlines and Liberty Broadband 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 Liberty Broadband 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 Liberty Broadband, you can compare the effects of market volatilities on Southwest Airlines and Liberty Broadband 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 Liberty Broadband. Check out your portfolio center. Please also check ongoing floating volatility patterns of Southwest Airlines and Liberty Broadband.
Diversification Opportunities for Southwest Airlines and Liberty Broadband
0.78 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Southwest and Liberty is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Southwest Airlines Co and Liberty Broadband in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Liberty Broadband 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 Liberty Broadband. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Liberty Broadband has no effect on the direction of Southwest Airlines i.e., Southwest Airlines and Liberty Broadband go up and down completely randomly.
Pair Corralation between Southwest Airlines and Liberty Broadband
Assuming the 90 days horizon Southwest Airlines is expected to generate 2.42 times less return on investment than Liberty Broadband. But when comparing it to its historical volatility, Southwest Airlines Co is 1.66 times less risky than Liberty Broadband. It trades about 0.08 of its potential returns per unit of risk. Liberty Broadband is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest 4,720 in Liberty Broadband on September 12, 2024 and sell it today you would earn a total of 2,930 from holding Liberty Broadband or generate 62.08% 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. Liberty Broadband
Performance |
| Timeline |
| Southwest Airlines |
| Liberty Broadband |
Southwest Airlines and Liberty Broadband Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Southwest Airlines and Liberty Broadband
The main advantage of trading using opposite Southwest Airlines and Liberty Broadband positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Southwest Airlines position performs unexpectedly, Liberty Broadband 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 Liberty Broadband will offset losses from the drop in Liberty Broadband'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 |
| Liberty Broadband vs. Comcast | Liberty Broadband vs. WideOpenWest | Liberty Broadband vs. Superior Plus Corp | Liberty Broadband vs. NMI Holdings |
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 Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.
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