Correlation Between Southwest Airlines and Air T

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

By analyzing existing cross correlation between Southwest Airlines and Air T Inc, you can compare the effects of market volatilities on Southwest Airlines and Air T 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 Air T. Check out your portfolio center. Please also check ongoing floating volatility patterns of Southwest Airlines and Air T.

Diversification Opportunities for Southwest Airlines and Air T

-0.47

Correlation Coefficient

Southwest Airlines  Air T

Very good diversification

The 3 months correlation between Southwest and Air is -0.47. Overlapping area represents the amount of risk that can be diversified away by holding Southwest Airlines and Air T Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Air T Inc 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 Air T. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Air T Inc has no effect on the direction of Southwest Airlines i.e., Southwest Airlines and Air T go up and down completely randomly.

Pair Corralation between Southwest Airlines and Air T

Considering the 90-day investment horizon Southwest Airlines is expected to generate 0.54 times more return on investment than Air T. However, Southwest Airlines is 1.86 times less risky than Air T. It trades about 0.21 of its potential returns per unit of risk. Air T Inc is currently generating about -0.11 per unit of risk. If you would invest  2,595  in Southwest Airlines on March 31, 2024 and sell it today you would earn a total of  266.00  from holding Southwest Airlines or generate 10.25% return on investment over 90 days.

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

Southwest Airlines  vs.  Air T Inc

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 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.

Air T Inc

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Air T Inc are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, Air T may actually be approaching a critical reversion point that can send shares even higher in July 2024.

Pair Trading with Southwest Airlines and Air T

The main advantage of trading using opposite Southwest Airlines and Air T positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Southwest Airlines position performs unexpectedly, Air T 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 Air T will offset losses from the drop in Air T's long position.

The idea behind Southwest Airlines and Air T Inc 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.

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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.