Correlation Between SOUTHWEST AIRLINES and ALERION CLEANPOWER
Can any of the company-specific risk be diversified away by investing in both SOUTHWEST AIRLINES and ALERION CLEANPOWER 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 ALERION CLEANPOWER into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between SOUTHWEST AIRLINES and ALERION CLEANPOWER, you can compare the effects of market volatilities on SOUTHWEST AIRLINES and ALERION CLEANPOWER 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 ALERION CLEANPOWER. Check out your portfolio center. Please also check ongoing floating volatility patterns of SOUTHWEST AIRLINES and ALERION CLEANPOWER.
Diversification Opportunities for SOUTHWEST AIRLINES and ALERION CLEANPOWER
-0.1 | Correlation Coefficient |
Good diversification
The 3 months correlation between SOUTHWEST and ALERION is -0.1. Overlapping area represents the amount of risk that can be diversified away by holding SOUTHWEST AIRLINES and ALERION CLEANPOWER in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ALERION CLEANPOWER 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 ALERION CLEANPOWER. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ALERION CLEANPOWER has no effect on the direction of SOUTHWEST AIRLINES i.e., SOUTHWEST AIRLINES and ALERION CLEANPOWER go up and down completely randomly.
Pair Corralation between SOUTHWEST AIRLINES and ALERION CLEANPOWER
Assuming the 90 days trading horizon SOUTHWEST AIRLINES is expected to generate 0.82 times more return on investment than ALERION CLEANPOWER. However, SOUTHWEST AIRLINES is 1.22 times less risky than ALERION CLEANPOWER. It trades about 0.1 of its potential returns per unit of risk. ALERION CLEANPOWER is currently generating about 0.01 per unit of risk. If you would invest 2,487 in SOUTHWEST AIRLINES on September 3, 2024 and sell it today you would earn a total of 679.00 from holding SOUTHWEST AIRLINES or generate 27.3% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
SOUTHWEST AIRLINES vs. ALERION CLEANPOWER
Performance |
| Timeline |
| SOUTHWEST AIRLINES |
| ALERION CLEANPOWER |
SOUTHWEST AIRLINES and ALERION CLEANPOWER Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with SOUTHWEST AIRLINES and ALERION CLEANPOWER
The main advantage of trading using opposite SOUTHWEST AIRLINES and ALERION CLEANPOWER positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SOUTHWEST AIRLINES position performs unexpectedly, ALERION CLEANPOWER 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 ALERION CLEANPOWER will offset losses from the drop in ALERION CLEANPOWER's long position.| SOUTHWEST AIRLINES vs. MCEWEN MINING INC | SOUTHWEST AIRLINES vs. GALENA MINING LTD | SOUTHWEST AIRLINES vs. Apollo Investment Corp | SOUTHWEST AIRLINES vs. SLR Investment Corp |
| ALERION CLEANPOWER vs. Apollo Medical Holdings | ALERION CLEANPOWER vs. American Airlines Group | ALERION CLEANPOWER vs. IMAGIN MEDICAL INC | ALERION CLEANPOWER vs. AVITA Medical |
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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.
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