Correlation Between Visa and Southwest Airlines
Can any of the company-specific risk be diversified away by investing in both Visa 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 Visa and Southwest Airlines into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Visa Inc and Southwest Airlines, you can compare the effects of market volatilities on Visa 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 Visa with a short position of Southwest Airlines. Check out your portfolio center. Please also check ongoing floating volatility patterns of Visa and Southwest Airlines.
Diversification Opportunities for Visa and Southwest Airlines
0.85 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Visa and Southwest is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Visa Inc and Southwest Airlines in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Southwest Airlines and Visa 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 Visa Inc 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 Visa i.e., Visa and Southwest Airlines go up and down completely randomly.
Pair Corralation between Visa and Southwest Airlines
Given the investment horizon of 90 days Visa Inc is expected to generate 0.57 times more return on investment than Southwest Airlines. However, Visa Inc is 1.77 times less risky than Southwest Airlines. It trades about 0.1 of its potential returns per unit of risk. Southwest Airlines is currently generating about 0.02 per unit of risk. If you would invest 404,952 in Visa Inc on August 28, 2024 and sell it today you would earn a total of 226,248 from holding Visa Inc or generate 55.87% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 99.72% |
| Values | Daily Returns |
Visa Inc vs. Southwest Airlines
Performance |
| Timeline |
| Visa Inc |
| Southwest Airlines |
Visa and Southwest Airlines Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Visa and Southwest Airlines
The main advantage of trading using opposite Visa and Southwest Airlines positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Visa 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.| Visa vs. Verizon Communications | Visa vs. Capital One Financial | Visa vs. Prudential Financial | Visa vs. First Republic Bank |
| Southwest Airlines vs. First Republic Bank | Southwest Airlines vs. Grupo Sports World | Southwest Airlines vs. Cognizant Technology Solutions | Southwest Airlines vs. UnitedHealth Group Incorporated |
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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.
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