Correlation Between SOUTHWEST AIRLINES and KIMBALL ELECTRONICS
Can any of the company-specific risk be diversified away by investing in both SOUTHWEST AIRLINES and KIMBALL ELECTRONICS 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 KIMBALL ELECTRONICS into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between SOUTHWEST AIRLINES and KIMBALL ELECTRONICS, you can compare the effects of market volatilities on SOUTHWEST AIRLINES and KIMBALL ELECTRONICS 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 KIMBALL ELECTRONICS. Check out your portfolio center. Please also check ongoing floating volatility patterns of SOUTHWEST AIRLINES and KIMBALL ELECTRONICS.
Diversification Opportunities for SOUTHWEST AIRLINES and KIMBALL ELECTRONICS
0.63 | Correlation Coefficient |
Poor diversification
The 3 months correlation between SOUTHWEST and KIMBALL is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding SOUTHWEST AIRLINES and KIMBALL ELECTRONICS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KIMBALL ELECTRONICS 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 KIMBALL ELECTRONICS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of KIMBALL ELECTRONICS has no effect on the direction of SOUTHWEST AIRLINES i.e., SOUTHWEST AIRLINES and KIMBALL ELECTRONICS go up and down completely randomly.
Pair Corralation between SOUTHWEST AIRLINES and KIMBALL ELECTRONICS
Assuming the 90 days trading horizon SOUTHWEST AIRLINES is expected to generate 0.83 times more return on investment than KIMBALL ELECTRONICS. However, SOUTHWEST AIRLINES is 1.21 times less risky than KIMBALL ELECTRONICS. It trades about 0.04 of its potential returns per unit of risk. KIMBALL ELECTRONICS is currently generating about 0.02 per unit of risk. If you would invest 3,061 in SOUTHWEST AIRLINES on October 19, 2024 and sell it today you would earn a total of 58.00 from holding SOUTHWEST AIRLINES or generate 1.89% 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. KIMBALL ELECTRONICS
Performance |
| Timeline |
| SOUTHWEST AIRLINES |
| KIMBALL ELECTRONICS |
SOUTHWEST AIRLINES and KIMBALL ELECTRONICS Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with SOUTHWEST AIRLINES and KIMBALL ELECTRONICS
The main advantage of trading using opposite SOUTHWEST AIRLINES and KIMBALL ELECTRONICS positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SOUTHWEST AIRLINES position performs unexpectedly, KIMBALL ELECTRONICS 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 KIMBALL ELECTRONICS will offset losses from the drop in KIMBALL ELECTRONICS's long position.| SOUTHWEST AIRLINES vs. Mitsubishi Gas Chemical | SOUTHWEST AIRLINES vs. CHEMICAL INDUSTRIES | SOUTHWEST AIRLINES vs. Coffee Holding Co | SOUTHWEST AIRLINES vs. Mitsui Chemicals |
| KIMBALL ELECTRONICS vs. SOUTHWEST AIRLINES | KIMBALL ELECTRONICS vs. Nok Airlines PCL | KIMBALL ELECTRONICS vs. ASPEN TECHINC DL | KIMBALL ELECTRONICS vs. Kingdee International Software |
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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.
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