Correlation Between SOUTHWEST AIRLINES and Applied Materials
Can any of the company-specific risk be diversified away by investing in both SOUTHWEST AIRLINES and Applied Materials 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 Applied Materials into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between SOUTHWEST AIRLINES and Applied Materials, you can compare the effects of market volatilities on SOUTHWEST AIRLINES and Applied Materials 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 Applied Materials. Check out your portfolio center. Please also check ongoing floating volatility patterns of SOUTHWEST AIRLINES and Applied Materials.
Diversification Opportunities for SOUTHWEST AIRLINES and Applied Materials
-0.1 | Correlation Coefficient |
Good diversification
The 3 months correlation between SOUTHWEST and Applied is -0.1. Overlapping area represents the amount of risk that can be diversified away by holding SOUTHWEST AIRLINES and Applied Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Applied Materials 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 Applied Materials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Applied Materials has no effect on the direction of SOUTHWEST AIRLINES i.e., SOUTHWEST AIRLINES and Applied Materials go up and down completely randomly.
Pair Corralation between SOUTHWEST AIRLINES and Applied Materials
Assuming the 90 days trading horizon SOUTHWEST AIRLINES is expected to generate 26.08 times less return on investment than Applied Materials. But when comparing it to its historical volatility, SOUTHWEST AIRLINES is 1.11 times less risky than Applied Materials. It trades about 0.0 of its potential returns per unit of risk. Applied Materials is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest 13,052 in Applied Materials on August 28, 2024 and sell it today you would earn a total of 3,798 from holding Applied Materials or generate 29.1% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 99.72% |
| Values | Daily Returns |
SOUTHWEST AIRLINES vs. Applied Materials
Performance |
| Timeline |
| SOUTHWEST AIRLINES |
| Applied Materials |
SOUTHWEST AIRLINES and Applied Materials Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with SOUTHWEST AIRLINES and Applied Materials
The main advantage of trading using opposite SOUTHWEST AIRLINES and Applied Materials positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SOUTHWEST AIRLINES position performs unexpectedly, Applied Materials 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 Applied Materials will offset losses from the drop in Applied Materials' long position.| SOUTHWEST AIRLINES vs. BURLINGTON STORES | SOUTHWEST AIRLINES vs. JIAHUA STORES | SOUTHWEST AIRLINES vs. FAST RETAIL ADR | SOUTHWEST AIRLINES vs. REVO INSURANCE SPA |
| Applied Materials vs. Superior Plus Corp | Applied Materials vs. NMI Holdings | Applied Materials vs. Origin Agritech | Applied Materials 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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.
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