Correlation Between SOUTHWEST AIRLINES and Union Pacific
Can any of the company-specific risk be diversified away by investing in both SOUTHWEST AIRLINES and Union Pacific 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 Union Pacific into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between SOUTHWEST AIRLINES and Union Pacific, you can compare the effects of market volatilities on SOUTHWEST AIRLINES and Union Pacific 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 Union Pacific. Check out your portfolio center. Please also check ongoing floating volatility patterns of SOUTHWEST AIRLINES and Union Pacific.
Diversification Opportunities for SOUTHWEST AIRLINES and Union Pacific
0.23 | Correlation Coefficient |
Modest diversification
The 3 months correlation between SOUTHWEST and Union is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding SOUTHWEST AIRLINES and Union Pacific in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Union Pacific 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 Union Pacific. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Union Pacific has no effect on the direction of SOUTHWEST AIRLINES i.e., SOUTHWEST AIRLINES and Union Pacific go up and down completely randomly.
Pair Corralation between SOUTHWEST AIRLINES and Union Pacific
Assuming the 90 days trading horizon SOUTHWEST AIRLINES is expected to generate 1.43 times less return on investment than Union Pacific. In addition to that, SOUTHWEST AIRLINES is 1.23 times more volatile than Union Pacific. It trades about 0.03 of its total potential returns per unit of risk. Union Pacific is currently generating about 0.05 per unit of volatility. If you would invest 22,861 in Union Pacific on November 7, 2024 and sell it today you would earn a total of 754.00 from holding Union Pacific or generate 3.3% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
SOUTHWEST AIRLINES vs. Union Pacific
Performance |
| Timeline |
| SOUTHWEST AIRLINES |
| Union Pacific |
SOUTHWEST AIRLINES and Union Pacific Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with SOUTHWEST AIRLINES and Union Pacific
The main advantage of trading using opposite SOUTHWEST AIRLINES and Union Pacific positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SOUTHWEST AIRLINES position performs unexpectedly, Union Pacific 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 Union Pacific will offset losses from the drop in Union Pacific's long position.| SOUTHWEST AIRLINES vs. Apple Inc | SOUTHWEST AIRLINES vs. Apple Inc | SOUTHWEST AIRLINES vs. Apple Inc | SOUTHWEST AIRLINES vs. Apple Inc |
| Union Pacific vs. CyberArk Software | Union Pacific vs. Constellation Software | Union Pacific vs. VITEC SOFTWARE GROUP | Union Pacific vs. ASPEN TECHINC DL |
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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.
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