Correlation Between Southwest Airlines and AIR CHINA
Can any of the company-specific risk be diversified away by investing in both Southwest Airlines and AIR CHINA 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 AIR CHINA 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 AIR CHINA LTD, you can compare the effects of market volatilities on Southwest Airlines and AIR CHINA 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 AIR CHINA. Check out your portfolio center. Please also check ongoing floating volatility patterns of Southwest Airlines and AIR CHINA.
Diversification Opportunities for Southwest Airlines and AIR CHINA
0.76 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Southwest and AIR is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Southwest Airlines Co and AIR CHINA LTD in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AIR CHINA LTD 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 AIR CHINA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AIR CHINA LTD has no effect on the direction of Southwest Airlines i.e., Southwest Airlines and AIR CHINA go up and down completely randomly.
Pair Corralation between Southwest Airlines and AIR CHINA
Assuming the 90 days horizon Southwest Airlines Co is expected to under-perform the AIR CHINA. But the stock apears to be less risky and, when comparing its historical volatility, Southwest Airlines Co is 2.01 times less risky than AIR CHINA. The stock trades about -0.23 of its potential returns per unit of risk. The AIR CHINA LTD is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest 1,150 in AIR CHINA LTD on November 5, 2024 and sell it today you would lose (40.00) from holding AIR CHINA LTD or give up 3.48% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 95.24% |
| Values | Daily Returns |
Southwest Airlines Co vs. AIR CHINA LTD
Performance |
| Timeline |
| Southwest Airlines |
| AIR CHINA LTD |
Southwest Airlines and AIR CHINA Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Southwest Airlines and AIR CHINA
The main advantage of trading using opposite Southwest Airlines and AIR CHINA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Southwest Airlines position performs unexpectedly, AIR CHINA 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 AIR CHINA will offset losses from the drop in AIR CHINA's long position.| Southwest Airlines vs. CDL INVESTMENT | Southwest Airlines vs. New Residential Investment | Southwest Airlines vs. SLR Investment Corp | Southwest Airlines vs. Lendlease Group |
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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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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