Correlation Between A2Z Smart and Southwest Airlines

Can any of the company-specific risk be diversified away by investing in both A2Z Smart 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 A2Z Smart and Southwest Airlines into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between A2Z Smart Technologies and Southwest Airlines, you can compare the effects of market volatilities on A2Z Smart 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 A2Z Smart with a short position of Southwest Airlines. Check out your portfolio center. Please also check ongoing floating volatility patterns of A2Z Smart and Southwest Airlines.

Diversification Opportunities for A2Z Smart and Southwest Airlines

0.79

Correlation Coefficient

A2Z Smart  Southwest Airlines

Poor diversification

The 3 months correlation between A2Z and Southwest is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding A2Z Smart Technologies and Southwest Airlines in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Southwest Airlines and A2Z Smart 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 A2Z Smart Technologies 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 A2Z Smart i.e., A2Z Smart and Southwest Airlines go up and down completely randomly.

Pair Corralation between A2Z Smart and Southwest Airlines

Allowing for the 90-day total investment horizon A2Z Smart Technologies is expected to generate 3.28 times more return on investment than Southwest Airlines. However, A2Z Smart is 3.28 times more volatile than Southwest Airlines. It trades about -0.05 of its potential returns per unit of risk. Southwest Airlines is currently generating about -0.16 per unit of risk. If you would invest  48.00  in A2Z Smart Technologies on January 31, 2024 and sell it today you would lose (6.00) from holding A2Z Smart Technologies or give up 12.5% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

A2Z Smart Technologies  vs.  Southwest Airlines

A2Z Smart Technologies

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days A2Z Smart Technologies has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of abnormal performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in May 2024. The current disturbance may also be a sign of long term up-swing for the company investors.

Southwest Airlines

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Southwest Airlines has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest conflicting performance, the Stock's basic indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the venture sophisticated investors.

Pair Trading with A2Z Smart and Southwest Airlines

The main advantage of trading using opposite A2Z Smart and Southwest Airlines positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if A2Z Smart 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 A2Z Smart Technologies 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.