Correlation Between LATAM Airlines and Southwest Airlines

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

Diversification Opportunities for LATAM Airlines and Southwest Airlines

0.0
  Correlation Coefficient

Pay attention - limited upside

The 3 months correlation between LATAM and Southwest is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding LATAM Airlines Group and Southwest Airlines in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Southwest Airlines and LATAM Airlines 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 LATAM Airlines 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 LATAM Airlines i.e., LATAM Airlines and Southwest Airlines go up and down completely randomly.

Pair Corralation between LATAM Airlines and Southwest Airlines

If you would invest (100.00) in LATAM Airlines Group on December 30, 2023 and sell it today you would earn a total of  100.00  from holding LATAM Airlines Group or generate -100.0% return on investment over 90 days.
Time Period3 Months [change]
DirectionFlat 
StrengthInsignificant
Accuracy0.0%
ValuesDaily Returns

LATAM Airlines Group  vs.  Southwest Airlines

 Performance 
       Timeline  
LATAM Airlines Group 

Risk-Adjusted Performance

0 of 100

 
Low
 
High
Very Weak
Over the last 90 days LATAM Airlines Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, LATAM Airlines is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.
Southwest Airlines 

Risk-Adjusted Performance

2 of 100

 
Low
 
High
Weak
Compared to the overall equity markets, risk-adjusted returns on investments in Southwest Airlines are ranked lower than 2 (%) 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.

LATAM Airlines and Southwest Airlines Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with LATAM Airlines and Southwest Airlines

The main advantage of trading using opposite LATAM Airlines and Southwest Airlines positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if LATAM Airlines 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 LATAM Airlines 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 AI Investment Finder module to use AI to screen and filter profitable investment opportunities.

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