Correlation Between Southwest Airlines and Spirit Airlines
Can any of the company-specific risk be diversified away by investing in both Southwest Airlines and Spirit Airlines 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 Spirit Airlines 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 Spirit Airlines, you can compare the effects of market volatilities on Southwest Airlines and Spirit Airlines 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 Spirit Airlines. Check out your portfolio center. Please also check ongoing floating volatility patterns of Southwest Airlines and Spirit Airlines.
Diversification Opportunities for Southwest Airlines and Spirit Airlines
-0.58 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Southwest and Spirit is -0.58. Overlapping area represents the amount of risk that can be diversified away by holding Southwest Airlines Co and Spirit Airlines in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Spirit Airlines 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 Spirit Airlines. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Spirit Airlines has no effect on the direction of Southwest Airlines i.e., Southwest Airlines and Spirit Airlines go up and down completely randomly.
Pair Corralation between Southwest Airlines and Spirit Airlines
Assuming the 90 days horizon Southwest Airlines Co is expected to generate 0.12 times more return on investment than Spirit Airlines. However, Southwest Airlines Co is 8.43 times less risky than Spirit Airlines. It trades about 0.18 of its potential returns per unit of risk. Spirit Airlines is currently generating about -0.26 per unit of risk. If you would invest 2,960 in Southwest Airlines Co on September 12, 2024 and sell it today you would earn a total of 202.00 from holding Southwest Airlines Co or generate 6.82% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 95.65% |
| Values | Daily Returns |
Southwest Airlines Co vs. Spirit Airlines
Performance |
| Timeline |
| Southwest Airlines |
| Spirit Airlines |
Southwest Airlines and Spirit Airlines Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Southwest Airlines and Spirit Airlines
The main advantage of trading using opposite Southwest Airlines and Spirit Airlines positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Southwest Airlines position performs unexpectedly, Spirit Airlines 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 Spirit Airlines will offset losses from the drop in Spirit Airlines' 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 |
| Spirit Airlines vs. RYANAIR HLDGS ADR | Spirit Airlines vs. Ryanair Holdings plc | Spirit Airlines vs. Superior Plus Corp | Spirit Airlines vs. SIVERS SEMICONDUCTORS AB |
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 File Import module to quickly import all of your third-party portfolios from your local drive in csv format.
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