Correlation Between Alaska Air and Southwest Airlines

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Can any of the company-specific risk be diversified away by investing in both Alaska Air 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 Alaska Air and Southwest Airlines into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Alaska Air Group and Southwest Airlines, you can compare the effects of market volatilities on Alaska Air 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 Alaska Air with a short position of Southwest Airlines. Check out your portfolio center. Please also check ongoing floating volatility patterns of Alaska Air and Southwest Airlines.

Diversification Opportunities for Alaska Air and Southwest Airlines

-0.12
  Correlation Coefficient

Good diversification

The 3 months correlation between Alaska and Southwest is -0.12. Overlapping area represents the amount of risk that can be diversified away by holding Alaska Air Group and Southwest Airlines in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Southwest Airlines and Alaska Air 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 Alaska Air Group 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 Alaska Air i.e., Alaska Air and Southwest Airlines go up and down completely randomly.

Pair Corralation between Alaska Air and Southwest Airlines

Considering the 90-day investment horizon Alaska Air Group is expected to generate 0.47 times more return on investment than Southwest Airlines. However, Alaska Air Group is 2.12 times less risky than Southwest Airlines. It trades about 0.11 of its potential returns per unit of risk. Southwest Airlines is currently generating about -0.2 per unit of risk. If you would invest  3,850  in Alaska Air Group on December 29, 2023 and sell it today you would earn a total of  137.00  from holding Alaska Air Group or generate 3.56% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

Alaska Air Group  vs.  Southwest Airlines

 Performance 
       Timeline  
Alaska Air Group 

Risk-Adjusted Performance

2 of 100

 
Low
 
High
Insignificant
Compared to the overall equity markets, risk-adjusted returns on investments in Alaska Air Group are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent essential indicators, Alaska Air is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.
Southwest Airlines 

Risk-Adjusted Performance

1 of 100

 
Low
 
High
Very Weak
Compared to the overall equity markets, risk-adjusted returns on investments in Southwest Airlines are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Southwest Airlines is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Alaska Air and Southwest Airlines Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Alaska Air and Southwest Airlines

The main advantage of trading using opposite Alaska Air and Southwest Airlines positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Alaska Air 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.
The idea behind Alaska Air Group and Southwest Airlines pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.
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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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.

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