Correlation Between Southwest Airlines and Bank of America
Can any of the company-specific risk be diversified away by investing in both Southwest Airlines and Bank of America 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 Bank of America 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 Bank of America 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 Bank of America. Check out your portfolio center. Please also check ongoing floating volatility patterns of Southwest Airlines and Bank of America.
Diversification Opportunities for Southwest Airlines and Bank of America
0.35 | Correlation Coefficient |
Weak diversification
The 3 months correlation between Southwest and Bank is 0.35. 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 Bank of America. 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 Bank of America go up and down completely randomly.
Pair Corralation between Southwest Airlines and Bank of America
Assuming the 90 days horizon Southwest Airlines Co is expected to generate 1.1 times more return on investment than Bank of America. However, Southwest Airlines is 1.1 times more volatile than Verizon Communications. It trades about 0.15 of its potential returns per unit of risk. Verizon Communications is currently generating about -0.19 per unit of risk. If you would invest 2,996 in Southwest Airlines Co on September 22, 2024 and sell it today you would earn a total of 120.00 from holding Southwest Airlines Co or generate 4.01% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Southwest Airlines Co vs. Verizon Communications
Performance |
| Timeline |
| Southwest Airlines |
| Verizon Communications |
Southwest Airlines and Bank of America Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Southwest Airlines and Bank of America
The main advantage of trading using opposite Southwest Airlines and Bank of America positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Southwest Airlines position performs unexpectedly, Bank of America 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 Bank of America will offset losses from the drop in Bank of America's long position.| Southwest Airlines vs. American Public Education | Southwest Airlines vs. Adtalem Global Education | Southwest Airlines vs. TYSON FOODS A | Southwest Airlines vs. INDOFOOD AGRI RES |
| Bank of America vs. Platinum Investment Management | Bank of America vs. CEOTRONICS | Bank of America vs. JAPAN AIRLINES | Bank of America vs. Southwest Airlines Co |
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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.
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