Correlation Between SOUTHWEST AIRLINES and Five Below
Can any of the company-specific risk be diversified away by investing in both SOUTHWEST AIRLINES and Five Below 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 Five Below into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between SOUTHWEST AIRLINES and Five Below, you can compare the effects of market volatilities on SOUTHWEST AIRLINES and Five Below 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 Five Below. Check out your portfolio center. Please also check ongoing floating volatility patterns of SOUTHWEST AIRLINES and Five Below.
Diversification Opportunities for SOUTHWEST AIRLINES and Five Below
0.71 | Correlation Coefficient |
Poor diversification
The 3 months correlation between SOUTHWEST and Five is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding SOUTHWEST AIRLINES and Five Below in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Five Below 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 Five Below. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Five Below has no effect on the direction of SOUTHWEST AIRLINES i.e., SOUTHWEST AIRLINES and Five Below go up and down completely randomly.
Pair Corralation between SOUTHWEST AIRLINES and Five Below
Assuming the 90 days trading horizon SOUTHWEST AIRLINES is expected to generate 2.46 times less return on investment than Five Below. But when comparing it to its historical volatility, SOUTHWEST AIRLINES is 2.11 times less risky than Five Below. It trades about 0.04 of its potential returns per unit of risk. Five Below is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest 8,698 in Five Below on October 30, 2024 and sell it today you would earn a total of 406.00 from holding Five Below or generate 4.67% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 97.37% |
| Values | Daily Returns |
SOUTHWEST AIRLINES vs. Five Below
Performance |
| Timeline |
| SOUTHWEST AIRLINES |
| Five Below |
SOUTHWEST AIRLINES and Five Below Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with SOUTHWEST AIRLINES and Five Below
The main advantage of trading using opposite SOUTHWEST AIRLINES and Five Below positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SOUTHWEST AIRLINES position performs unexpectedly, Five Below 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 Five Below will offset losses from the drop in Five Below's long position.| SOUTHWEST AIRLINES vs. FIREWEED METALS P | SOUTHWEST AIRLINES vs. International Consolidated Airlines | SOUTHWEST AIRLINES vs. Jacquet Metal Service | SOUTHWEST AIRLINES vs. GREENX METALS LTD |
| Five Below vs. RCI Hospitality Holdings | Five Below vs. PPHE HOTEL GROUP | Five Below vs. PURETECH HEALTH PLC | Five Below vs. Phibro Animal Health |
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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.
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