Correlation Between Southwest Airlines and Consolidated Communications
Can any of the company-specific risk be diversified away by investing in both Southwest Airlines and Consolidated 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 Consolidated 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 Consolidated Communications Holdings, you can compare the effects of market volatilities on Southwest Airlines and Consolidated 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 Consolidated Communications. Check out your portfolio center. Please also check ongoing floating volatility patterns of Southwest Airlines and Consolidated Communications.
Diversification Opportunities for Southwest Airlines and Consolidated Communications
0.89 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Southwest and Consolidated is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Southwest Airlines Co and Consolidated Communications Ho in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Consolidated 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 Consolidated Communications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Consolidated Communications has no effect on the direction of Southwest Airlines i.e., Southwest Airlines and Consolidated Communications go up and down completely randomly.
Pair Corralation between Southwest Airlines and Consolidated Communications
Assuming the 90 days horizon Southwest Airlines Co is expected to generate 2.37 times more return on investment than Consolidated Communications. However, Southwest Airlines is 2.37 times more volatile than Consolidated Communications Holdings. It trades about 0.1 of its potential returns per unit of risk. Consolidated Communications Holdings is currently generating about 0.09 per unit of risk. If you would invest 2,376 in Southwest Airlines Co on August 29, 2024 and sell it today you would earn a total of 703.00 from holding Southwest Airlines Co or generate 29.59% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Southwest Airlines Co vs. Consolidated Communications Ho
Performance |
| Timeline |
| Southwest Airlines |
| Consolidated Communications |
Southwest Airlines and Consolidated Communications Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Southwest Airlines and Consolidated Communications
The main advantage of trading using opposite Southwest Airlines and Consolidated Communications positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Southwest Airlines position performs unexpectedly, Consolidated 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 Consolidated Communications will offset losses from the drop in Consolidated Communications' long position.| Southwest Airlines vs. Ryanair Holdings plc | Southwest Airlines vs. Superior Plus Corp | Southwest Airlines vs. NMI Holdings | Southwest Airlines vs. Origin Agritech |
| Consolidated Communications vs. Verizon Communications | Consolidated Communications vs. ATT Inc | Consolidated Communications vs. ATT Inc | Consolidated Communications vs. Deutsche Telekom AG |
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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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