Correlation Between Wrapped Bitcoin and Southwest Airlines

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

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

Diversification Opportunities for Wrapped Bitcoin and Southwest Airlines

-0.24

Correlation Coefficient

Wrapped Bitcoin  Southwest Airlines

Very good diversification

The 3 months correlation between Wrapped and Southwest is -0.24. Overlapping area represents the amount of risk that can be diversified away by holding Wrapped Bitcoin and Southwest Airlines in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Southwest Airlines and Wrapped Bitcoin 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 Wrapped Bitcoin 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 Wrapped Bitcoin i.e., Wrapped Bitcoin and Southwest Airlines go up and down completely randomly.

Pair Corralation between Wrapped Bitcoin and Southwest Airlines

Assuming the 90 days trading horizon Wrapped Bitcoin is expected to generate 1.07 times more return on investment than Southwest Airlines. However, Wrapped Bitcoin is 1.07 times more volatile than Southwest Airlines. It trades about -0.11 of its potential returns per unit of risk. Southwest Airlines is currently generating about -0.16 per unit of risk. If you would invest  6,546,026  in Wrapped Bitcoin on January 31, 2024 and sell it today you would lose (396,824) from holding Wrapped Bitcoin or give up 6.06% of portfolio value over 90 days.

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

Wrapped Bitcoin  vs.  Southwest Airlines

Wrapped Bitcoin

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Wrapped Bitcoin are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, Wrapped Bitcoin exhibited solid returns over the last few months and may actually be approaching a breakup point.

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 Wrapped Bitcoin and Southwest Airlines

The main advantage of trading using opposite Wrapped Bitcoin and Southwest Airlines positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Wrapped Bitcoin 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 Wrapped Bitcoin 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.