Correlation Between XPO Logistics and Southwest Airlines
Can any of the company-specific risk be diversified away by investing in both XPO Logistics 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 XPO Logistics and Southwest Airlines into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between XPO Logistics and Southwest Airlines, you can compare the effects of market volatilities on XPO Logistics 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 XPO Logistics with a short position of Southwest Airlines. Check out your portfolio center. Please also check ongoing floating volatility patterns of XPO Logistics and Southwest Airlines.
Diversification Opportunities for XPO Logistics and Southwest Airlines
0.62 | Correlation Coefficient |
Poor diversification
The 3 months correlation between XPO and Southwest is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding XPO Logistics and Southwest Airlines in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Southwest Airlines and XPO Logistics 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 XPO Logistics 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 XPO Logistics i.e., XPO Logistics and Southwest Airlines go up and down completely randomly.
Pair Corralation between XPO Logistics and Southwest Airlines
Considering the 90-day investment horizon XPO Logistics is expected to generate 2.17 times more return on investment than Southwest Airlines. However, XPO Logistics is 2.17 times more volatile than Southwest Airlines. It trades about 0.3 of its potential returns per unit of risk. Southwest Airlines is currently generating about 0.13 per unit of risk. If you would invest 12,025 in XPO Logistics on August 30, 2024 and sell it today you would earn a total of 2,997 from holding XPO Logistics or generate 24.92% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 95.65% |
| Values | Daily Returns |
XPO Logistics vs. Southwest Airlines
Performance |
| Timeline |
| XPO Logistics |
| Southwest Airlines |
XPO Logistics and Southwest Airlines Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with XPO Logistics and Southwest Airlines
The main advantage of trading using opposite XPO Logistics and Southwest Airlines positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if XPO Logistics 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.| XPO Logistics vs. Knight Transportation | XPO Logistics vs. Schneider National | XPO Logistics vs. Heartland Express | XPO Logistics vs. Saia Inc |
| Southwest Airlines vs. United Airlines Holdings | Southwest Airlines vs. American Airlines Group | Southwest Airlines vs. JetBlue Airways Corp | Southwest Airlines vs. Delta Air Lines |
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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.
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