Correlation Between Southwest Airlines and Deutsche Lufthansa
Can any of the company-specific risk be diversified away by investing in both Southwest Airlines and Deutsche Lufthansa 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 Deutsche Lufthansa 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 Deutsche Lufthansa AG, you can compare the effects of market volatilities on Southwest Airlines and Deutsche Lufthansa 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 Deutsche Lufthansa. Check out your portfolio center. Please also check ongoing floating volatility patterns of Southwest Airlines and Deutsche Lufthansa.
Diversification Opportunities for Southwest Airlines and Deutsche Lufthansa
0.23 | Correlation Coefficient |
Modest diversification
The 3 months correlation between Southwest and Deutsche is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding Southwest Airlines Co and Deutsche Lufthansa AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Deutsche Lufthansa 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 Deutsche Lufthansa. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Deutsche Lufthansa has no effect on the direction of Southwest Airlines i.e., Southwest Airlines and Deutsche Lufthansa go up and down completely randomly.
Pair Corralation between Southwest Airlines and Deutsche Lufthansa
Assuming the 90 days horizon Southwest Airlines Co is expected to generate 1.03 times more return on investment than Deutsche Lufthansa. However, Southwest Airlines is 1.03 times more volatile than Deutsche Lufthansa AG. It trades about 0.16 of its potential returns per unit of risk. Deutsche Lufthansa AG is currently generating about 0.04 per unit of risk. If you would invest 2,552 in Southwest Airlines Co on August 29, 2024 and sell it today you would earn a total of 527.00 from holding Southwest Airlines Co or generate 20.65% 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. Deutsche Lufthansa AG
Performance |
| Timeline |
| Southwest Airlines |
| Deutsche Lufthansa |
Southwest Airlines and Deutsche Lufthansa Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Southwest Airlines and Deutsche Lufthansa
The main advantage of trading using opposite Southwest Airlines and Deutsche Lufthansa positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Southwest Airlines position performs unexpectedly, Deutsche Lufthansa 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 Deutsche Lufthansa will offset losses from the drop in Deutsche Lufthansa's long position.| Southwest Airlines vs. RYANAIR HLDGS ADR | Southwest Airlines vs. Ryanair Holdings plc | Southwest Airlines vs. Superior Plus Corp | Southwest Airlines vs. NMI Holdings |
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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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.
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