Correlation Between Southwest Airlines and Lincoln Electric
Can any of the company-specific risk be diversified away by investing in both Southwest Airlines and Lincoln Electric 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 Lincoln Electric 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 Lincoln Electric Holdings, you can compare the effects of market volatilities on Southwest Airlines and Lincoln Electric 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 Lincoln Electric. Check out your portfolio center. Please also check ongoing floating volatility patterns of Southwest Airlines and Lincoln Electric.
Diversification Opportunities for Southwest Airlines and Lincoln Electric
0.92 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Southwest and Lincoln is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Southwest Airlines Co and Lincoln Electric Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lincoln Electric Holdings 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 Lincoln Electric. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lincoln Electric Holdings has no effect on the direction of Southwest Airlines i.e., Southwest Airlines and Lincoln Electric go up and down completely randomly.
Pair Corralation between Southwest Airlines and Lincoln Electric
Assuming the 90 days horizon Southwest Airlines is expected to generate 5.51 times less return on investment than Lincoln Electric. In addition to that, Southwest Airlines is 1.29 times more volatile than Lincoln Electric Holdings. It trades about 0.01 of its total potential returns per unit of risk. Lincoln Electric Holdings is currently generating about 0.06 per unit of volatility. If you would invest 13,086 in Lincoln Electric Holdings on September 12, 2024 and sell it today you would earn a total of 6,814 from holding Lincoln Electric Holdings or generate 52.07% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 99.8% |
| Values | Daily Returns |
Southwest Airlines Co vs. Lincoln Electric Holdings
Performance |
| Timeline |
| Southwest Airlines |
| Lincoln Electric Holdings |
Southwest Airlines and Lincoln Electric Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Southwest Airlines and Lincoln Electric
The main advantage of trading using opposite Southwest Airlines and Lincoln Electric positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Southwest Airlines position performs unexpectedly, Lincoln Electric 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 Lincoln Electric will offset losses from the drop in Lincoln Electric's long position.| Southwest Airlines vs. RYANAIR HLDGS ADR | Southwest Airlines vs. Ryanair Holdings plc | Southwest Airlines vs. Superior Plus Corp | Southwest Airlines vs. SIVERS SEMICONDUCTORS AB |
| Lincoln Electric vs. Rayonier Advanced Materials | Lincoln Electric vs. Pembina Pipeline Corp | Lincoln Electric vs. VULCAN MATERIALS | Lincoln Electric 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.
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