Correlation Between SOUTHWEST AIRLINES and TIANDE CHEMICAL
Can any of the company-specific risk be diversified away by investing in both SOUTHWEST AIRLINES and TIANDE CHEMICAL 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 TIANDE CHEMICAL into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between SOUTHWEST AIRLINES and TIANDE CHEMICAL, you can compare the effects of market volatilities on SOUTHWEST AIRLINES and TIANDE CHEMICAL 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 TIANDE CHEMICAL. Check out your portfolio center. Please also check ongoing floating volatility patterns of SOUTHWEST AIRLINES and TIANDE CHEMICAL.
Diversification Opportunities for SOUTHWEST AIRLINES and TIANDE CHEMICAL
0.79 | Correlation Coefficient |
Poor diversification
The 3 months correlation between SOUTHWEST and TIANDE is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding SOUTHWEST AIRLINES and TIANDE CHEMICAL in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TIANDE CHEMICAL 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 TIANDE CHEMICAL. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TIANDE CHEMICAL has no effect on the direction of SOUTHWEST AIRLINES i.e., SOUTHWEST AIRLINES and TIANDE CHEMICAL go up and down completely randomly.
Pair Corralation between SOUTHWEST AIRLINES and TIANDE CHEMICAL
Assuming the 90 days trading horizon SOUTHWEST AIRLINES is expected to generate 13.48 times less return on investment than TIANDE CHEMICAL. But when comparing it to its historical volatility, SOUTHWEST AIRLINES is 1.72 times less risky than TIANDE CHEMICAL. It trades about 0.01 of its potential returns per unit of risk. TIANDE CHEMICAL is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest 3.08 in TIANDE CHEMICAL on August 31, 2024 and sell it today you would earn a total of 4.17 from holding TIANDE CHEMICAL or generate 135.39% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 99.79% |
| Values | Daily Returns |
SOUTHWEST AIRLINES vs. TIANDE CHEMICAL
Performance |
| Timeline |
| SOUTHWEST AIRLINES |
| TIANDE CHEMICAL |
SOUTHWEST AIRLINES and TIANDE CHEMICAL Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with SOUTHWEST AIRLINES and TIANDE CHEMICAL
The main advantage of trading using opposite SOUTHWEST AIRLINES and TIANDE CHEMICAL positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SOUTHWEST AIRLINES position performs unexpectedly, TIANDE CHEMICAL 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 TIANDE CHEMICAL will offset losses from the drop in TIANDE CHEMICAL's long position.| SOUTHWEST AIRLINES vs. TIANDE CHEMICAL | SOUTHWEST AIRLINES vs. WESTLAKE CHEMICAL | SOUTHWEST AIRLINES vs. CVW CLEANTECH INC | SOUTHWEST AIRLINES vs. Mitsui Chemicals |
| TIANDE CHEMICAL vs. UET United Electronic | TIANDE CHEMICAL vs. United Insurance Holdings | TIANDE CHEMICAL vs. Nucletron Electronic Aktiengesellschaft | TIANDE CHEMICAL vs. Universal Insurance Holdings |
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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.
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