Correlation Between Volkswagen and SOUTHWEST AIRLINES
Can any of the company-specific risk be diversified away by investing in both Volkswagen 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 Volkswagen and SOUTHWEST AIRLINES into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Volkswagen AG and SOUTHWEST AIRLINES, you can compare the effects of market volatilities on Volkswagen 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 Volkswagen with a short position of SOUTHWEST AIRLINES. Check out your portfolio center. Please also check ongoing floating volatility patterns of Volkswagen and SOUTHWEST AIRLINES.
Diversification Opportunities for Volkswagen and SOUTHWEST AIRLINES
-0.88 | Correlation Coefficient |
Pay attention - limited upside
The 3 months correlation between Volkswagen and SOUTHWEST is -0.88. Overlapping area represents the amount of risk that can be diversified away by holding Volkswagen AG and SOUTHWEST AIRLINES in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SOUTHWEST AIRLINES and Volkswagen 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 Volkswagen AG 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 Volkswagen i.e., Volkswagen and SOUTHWEST AIRLINES go up and down completely randomly.
Pair Corralation between Volkswagen and SOUTHWEST AIRLINES
Assuming the 90 days trading horizon Volkswagen AG is expected to under-perform the SOUTHWEST AIRLINES. But the stock apears to be less risky and, when comparing its historical volatility, Volkswagen AG is 1.61 times less risky than SOUTHWEST AIRLINES. The stock trades about -0.33 of its potential returns per unit of risk. The SOUTHWEST AIRLINES is currently generating about 0.35 of returns per unit of risk over similar time horizon. If you would invest 2,762 in SOUTHWEST AIRLINES on September 4, 2024 and sell it today you would earn a total of 404.00 from holding SOUTHWEST AIRLINES or generate 14.63% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Volkswagen AG vs. SOUTHWEST AIRLINES
Performance |
| Timeline |
| Volkswagen AG |
| SOUTHWEST AIRLINES |
Volkswagen and SOUTHWEST AIRLINES Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Volkswagen and SOUTHWEST AIRLINES
The main advantage of trading using opposite Volkswagen and SOUTHWEST AIRLINES positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Volkswagen 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's long position.| Volkswagen vs. SOUTHWEST AIRLINES | Volkswagen vs. MITSUBISHI STEEL MFG | Volkswagen vs. Nok Airlines PCL | Volkswagen vs. Daido Steel Co |
| SOUTHWEST AIRLINES vs. TOTAL GABON | SOUTHWEST AIRLINES vs. Walgreens Boots Alliance | SOUTHWEST AIRLINES vs. Peak Resources Limited |
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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.
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