Correlation Between SOUTHWEST AIRLINES and Cars
Can any of the company-specific risk be diversified away by investing in both SOUTHWEST AIRLINES and Cars 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 Cars into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between SOUTHWEST AIRLINES and Cars Inc, you can compare the effects of market volatilities on SOUTHWEST AIRLINES and Cars 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 Cars. Check out your portfolio center. Please also check ongoing floating volatility patterns of SOUTHWEST AIRLINES and Cars.
Diversification Opportunities for SOUTHWEST AIRLINES and Cars
0.49 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between SOUTHWEST and Cars is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding SOUTHWEST AIRLINES and Cars Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cars Inc 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 Cars. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cars Inc has no effect on the direction of SOUTHWEST AIRLINES i.e., SOUTHWEST AIRLINES and Cars go up and down completely randomly.
Pair Corralation between SOUTHWEST AIRLINES and Cars
Assuming the 90 days trading horizon SOUTHWEST AIRLINES is expected to generate 1.18 times less return on investment than Cars. But when comparing it to its historical volatility, SOUTHWEST AIRLINES is 1.3 times less risky than Cars. It trades about 0.02 of its potential returns per unit of risk. Cars Inc is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest 1,700 in Cars Inc on August 31, 2024 and sell it today you would earn a total of 160.00 from holding Cars Inc or generate 9.41% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 99.74% |
| Values | Daily Returns |
SOUTHWEST AIRLINES vs. Cars Inc
Performance |
| Timeline |
| SOUTHWEST AIRLINES |
| Cars Inc |
SOUTHWEST AIRLINES and Cars Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with SOUTHWEST AIRLINES and Cars
The main advantage of trading using opposite SOUTHWEST AIRLINES and Cars positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SOUTHWEST AIRLINES position performs unexpectedly, Cars 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 Cars will offset losses from the drop in Cars' long position.| SOUTHWEST AIRLINES vs. TIANDE CHEMICAL | SOUTHWEST AIRLINES vs. WESTLAKE CHEMICAL | SOUTHWEST AIRLINES vs. CVW CLEANTECH INC | SOUTHWEST AIRLINES vs. Mitsui Chemicals |
| Cars vs. SALESFORCE INC CDR | Cars vs. FAST RETAIL ADR | Cars vs. Auto Trader Group | Cars vs. SHIP HEALTHCARE HLDGINC |
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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.
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