Correlation Between United Airlines and Southwest Airlines
Can any of the company-specific risk be diversified away by investing in both United Airlines and Southwest Airlines 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 United Airlines and Southwest Airlines into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between United Airlines Holdings and Southwest Airlines Co, you can compare the effects of market volatilities on United Airlines and Southwest Airlines 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 United Airlines with a short position of Southwest Airlines. Check out your portfolio center. Please also check ongoing floating volatility patterns of United Airlines and Southwest Airlines.
Diversification Opportunities for United Airlines and Southwest Airlines
0.78 | Correlation Coefficient |
Poor diversification
The 3 months correlation between United and Southwest is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding United Airlines Holdings and Southwest Airlines Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Southwest Airlines and United 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 United Airlines Holdings are associated (or correlated) with Southwest Airlines. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Southwest Airlines has no effect on the direction of United Airlines i.e., United Airlines and Southwest Airlines go up and down completely randomly.
Pair Corralation between United Airlines and Southwest Airlines
Assuming the 90 days trading horizon United Airlines Holdings is expected to generate 1.76 times more return on investment than Southwest Airlines. However, United Airlines is 1.76 times more volatile than Southwest Airlines Co. It trades about 0.16 of its potential returns per unit of risk. Southwest Airlines Co is currently generating about -0.23 per unit of risk. If you would invest 9,661 in United Airlines Holdings on November 5, 2024 and sell it today you would earn a total of 875.00 from holding United Airlines Holdings or generate 9.06% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
United Airlines Holdings vs. Southwest Airlines Co
Performance |
| Timeline |
| United Airlines Holdings |
| Southwest Airlines |
United Airlines and Southwest Airlines Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with United Airlines and Southwest Airlines
The main advantage of trading using opposite United Airlines and Southwest Airlines positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if United Airlines position performs unexpectedly, Southwest Airlines 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 Southwest Airlines will offset losses from the drop in Southwest Airlines' long position.| United Airlines vs. Geely Automobile Holdings | United Airlines vs. VELA TECHNOLPLC LS 0001 | United Airlines vs. Kingdee International Software | United Airlines vs. ASPEN TECHINC DL |
| Southwest Airlines vs. CDL INVESTMENT | Southwest Airlines vs. New Residential Investment | Southwest Airlines vs. SLR Investment Corp | Southwest Airlines vs. Lendlease Group |
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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.
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