Correlation Between SOUTHWEST AIRLINES and GFL ENVIRONM
Can any of the company-specific risk be diversified away by investing in both SOUTHWEST AIRLINES and GFL ENVIRONM 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 GFL ENVIRONM into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between SOUTHWEST AIRLINES and GFL ENVIRONM, you can compare the effects of market volatilities on SOUTHWEST AIRLINES and GFL ENVIRONM 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 GFL ENVIRONM. Check out your portfolio center. Please also check ongoing floating volatility patterns of SOUTHWEST AIRLINES and GFL ENVIRONM.
Diversification Opportunities for SOUTHWEST AIRLINES and GFL ENVIRONM
0.75 | Correlation Coefficient |
Poor diversification
The 3 months correlation between SOUTHWEST and GFL is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding SOUTHWEST AIRLINES and GFL ENVIRONM in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GFL ENVIRONM 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 are associated (or correlated) with GFL ENVIRONM. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GFL ENVIRONM has no effect on the direction of SOUTHWEST AIRLINES i.e., SOUTHWEST AIRLINES and GFL ENVIRONM go up and down completely randomly.
Pair Corralation between SOUTHWEST AIRLINES and GFL ENVIRONM
Assuming the 90 days trading horizon SOUTHWEST AIRLINES is expected to generate 1.69 times less return on investment than GFL ENVIRONM. But when comparing it to its historical volatility, SOUTHWEST AIRLINES is 1.03 times less risky than GFL ENVIRONM. It trades about 0.22 of its potential returns per unit of risk. GFL ENVIRONM is currently generating about 0.37 of returns per unit of risk over similar time horizon. If you would invest 3,720 in GFL ENVIRONM on August 27, 2024 and sell it today you would earn a total of 620.00 from holding GFL ENVIRONM or generate 16.67% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
SOUTHWEST AIRLINES vs. GFL ENVIRONM
Performance |
| Timeline |
| SOUTHWEST AIRLINES |
| GFL ENVIRONM |
SOUTHWEST AIRLINES and GFL ENVIRONM Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with SOUTHWEST AIRLINES and GFL ENVIRONM
The main advantage of trading using opposite SOUTHWEST AIRLINES and GFL ENVIRONM positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SOUTHWEST AIRLINES position performs unexpectedly, GFL ENVIRONM 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 GFL ENVIRONM will offset losses from the drop in GFL ENVIRONM's long position.| SOUTHWEST AIRLINES vs. Penn National Gaming | SOUTHWEST AIRLINES vs. Boyd Gaming | SOUTHWEST AIRLINES vs. Hochschild Mining plc | SOUTHWEST AIRLINES vs. Scandinavian Tobacco Group |
| GFL ENVIRONM vs. Superior Plus Corp | GFL ENVIRONM vs. NMI Holdings | GFL ENVIRONM vs. Origin Agritech | GFL ENVIRONM 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.
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