Correlation Between Southwest Airlines and Delta Air
Can any of the company-specific risk be diversified away by investing in both Southwest Airlines and Delta Air 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 Southwest Airlines and Delta Air into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Southwest Airlines and Delta Air Lines, you can compare the effects of market volatilities on Southwest Airlines and Delta Air 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 Southwest Airlines with a short position of Delta Air. Check out your portfolio center. Please also check ongoing floating volatility patterns of Southwest Airlines and Delta Air.
Diversification Opportunities for Southwest Airlines and Delta Air
-0.38 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Southwest and Delta is -0.38. Overlapping area represents the amount of risk that can be diversified away by holding Southwest Airlines and Delta Air Lines in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Delta Air Lines and Southwest 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 Southwest Airlines are associated (or correlated) with Delta Air. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Delta Air Lines has no effect on the direction of Southwest Airlines i.e., Southwest Airlines and Delta Air go up and down completely randomly.
Pair Corralation between Southwest Airlines and Delta Air
Considering the 90-day investment horizon Southwest Airlines is expected to generate 1.75 times less return on investment than Delta Air. In addition to that, Southwest Airlines is 1.29 times more volatile than Delta Air Lines. It trades about 0.08 of its total potential returns per unit of risk. Delta Air Lines is currently generating about 0.18 per unit of volatility. If you would invest 3,196 in Delta Air Lines on January 19, 2024 and sell it today you would earn a total of 1,592 from holding Delta Air Lines or generate 49.81% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Southwest Airlines vs. Delta Air Lines
Performance |
| Timeline |
| Southwest Airlines |
| Delta Air Lines |
Southwest Airlines and Delta Air Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Southwest Airlines and Delta Air
The main advantage of trading using opposite Southwest Airlines and Delta Air positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Southwest Airlines position performs unexpectedly, Delta Air 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 Delta Air will offset losses from the drop in Delta Air's long position.| Southwest Airlines vs. United Airlines Holdings | Southwest Airlines vs. American Airlines Group | Southwest Airlines vs. JetBlue Airways Corp | Southwest Airlines vs. Spirit Airlines |
| Delta Air vs. American Airlines Group | Delta Air vs. Southwest Airlines | Delta Air vs. JetBlue Airways Corp | Delta Air vs. Spirit Airlines |
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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.
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