Correlation Between Southwest Airlines and Choice Hotels
Can any of the company-specific risk be diversified away by investing in both Southwest Airlines and Choice Hotels 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 Choice Hotels 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 Choice Hotels International, you can compare the effects of market volatilities on Southwest Airlines and Choice Hotels 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 Choice Hotels. Check out your portfolio center. Please also check ongoing floating volatility patterns of Southwest Airlines and Choice Hotels.
Diversification Opportunities for Southwest Airlines and Choice Hotels
0.7 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Southwest and Choice is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Southwest Airlines Co and Choice Hotels International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Choice Hotels Intern 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 Choice Hotels. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Choice Hotels Intern has no effect on the direction of Southwest Airlines i.e., Southwest Airlines and Choice Hotels go up and down completely randomly.
Pair Corralation between Southwest Airlines and Choice Hotels
Assuming the 90 days horizon Southwest Airlines Co is expected to under-perform the Choice Hotels. In addition to that, Southwest Airlines is 1.06 times more volatile than Choice Hotels International. It trades about -0.22 of its total potential returns per unit of risk. Choice Hotels International is currently generating about 0.13 per unit of volatility. If you would invest 13,371 in Choice Hotels International on October 26, 2024 and sell it today you would earn a total of 429.00 from holding Choice Hotels International or generate 3.21% 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. Choice Hotels International
Performance |
| Timeline |
| Southwest Airlines |
| Choice Hotels Intern |
Southwest Airlines and Choice Hotels Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Southwest Airlines and Choice Hotels
The main advantage of trading using opposite Southwest Airlines and Choice Hotels positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Southwest Airlines position performs unexpectedly, Choice Hotels 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 Choice Hotels will offset losses from the drop in Choice Hotels' long position.| Southwest Airlines vs. G III Apparel Group | Southwest Airlines vs. RYU Apparel | Southwest Airlines vs. Rayonier Advanced Materials | Southwest Airlines vs. HOME DEPOT |
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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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.
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