Correlation Between Union Pacific and Southwest Airlines
Can any of the company-specific risk be diversified away by investing in both Union Pacific 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 Union Pacific and Southwest Airlines into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Union Pacific and Southwest Airlines, you can compare the effects of market volatilities on Union Pacific 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 Union Pacific with a short position of Southwest Airlines. Check out your portfolio center. Please also check ongoing floating volatility patterns of Union Pacific and Southwest Airlines.
Diversification Opportunities for Union Pacific and Southwest Airlines
-0.55 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Union and Southwest is -0.55. Overlapping area represents the amount of risk that can be diversified away by holding Union Pacific and Southwest Airlines in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Southwest Airlines and Union Pacific 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 Union Pacific 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 Union Pacific i.e., Union Pacific and Southwest Airlines go up and down completely randomly.
Pair Corralation between Union Pacific and Southwest Airlines
Considering the 90-day investment horizon Union Pacific is expected to generate 1.58 times less return on investment than Southwest Airlines. In addition to that, Union Pacific is 1.04 times more volatile than Southwest Airlines. It trades about 0.14 of its total potential returns per unit of risk. Southwest Airlines is currently generating about 0.23 per unit of volatility. If you would invest 2,943 in Southwest Airlines on August 26, 2024 and sell it today you would earn a total of 254.00 from holding Southwest Airlines or generate 8.63% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Union Pacific vs. Southwest Airlines
Performance |
| Timeline |
| Union Pacific |
| Southwest Airlines |
Union Pacific and Southwest Airlines Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Union Pacific and Southwest Airlines
The main advantage of trading using opposite Union Pacific and Southwest Airlines positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Union Pacific 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.| Union Pacific vs. Norfolk Southern | Union Pacific vs. CSX Corporation | Union Pacific vs. United Parcel Service | Union Pacific vs. Canadian National Railway |
| Southwest Airlines vs. United Airlines Holdings | Southwest Airlines vs. American Airlines Group | Southwest Airlines vs. JetBlue Airways Corp | Southwest Airlines vs. Spirit Airlines |
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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.
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