Correlation Between Southwest Airlines and United Airlines
Can any of the company-specific risk be diversified away by investing in both Southwest Airlines and United 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 Southwest Airlines and United Airlines into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Southwest Airlines and United Airlines Holdings, you can compare the effects of market volatilities on Southwest Airlines and United 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 Southwest Airlines with a short position of United Airlines. Check out your portfolio center. Please also check ongoing floating volatility patterns of Southwest Airlines and United Airlines.
Diversification Opportunities for Southwest Airlines and United Airlines
-0.47 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Southwest and United is -0.47. Overlapping area represents the amount of risk that can be diversified away by holding Southwest Airlines and United Airlines Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on United Airlines Holdings 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 United Airlines. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of United Airlines Holdings has no effect on the direction of Southwest Airlines i.e., Southwest Airlines and United Airlines go up and down completely randomly.
Pair Corralation between Southwest Airlines and United Airlines
Considering the 90-day investment horizon Southwest Airlines is expected to under-perform the United Airlines. But the stock apears to be less risky and, when comparing its historical volatility, Southwest Airlines is 1.74 times less risky than United Airlines. The stock trades about -0.03 of its potential returns per unit of risk. The United Airlines Holdings is currently generating about 0.24 of returns per unit of risk over similar time horizon. If you would invest 4,237 in United Airlines Holdings on February 10, 2024 and sell it today you would earn a total of 1,026 from holding United Airlines Holdings or generate 24.22% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 95.65% |
| Values | Daily Returns |
Southwest Airlines vs. United Airlines Holdings
Performance |
| Timeline |
| Southwest Airlines |
| United Airlines Holdings |
Southwest Airlines and United Airlines Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Southwest Airlines and United Airlines
The main advantage of trading using opposite Southwest Airlines and United Airlines positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Southwest Airlines position performs unexpectedly, United 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 United Airlines will offset losses from the drop in United Airlines' 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 |
| United Airlines vs. American Airlines Group | United Airlines vs. Southwest Airlines | United Airlines vs. JetBlue Airways Corp | United Airlines 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.
Other Complementary Tools
| Odds Of Bankruptcy Get analysis of equity chance of financial distress in the next 2 years | |
| Bonds Directory Find actively traded corporate debentures issued by US companies | |
| Efficient Frontier Plot and analyze your portfolio and positions against risk-return landscape of the market. | |
| Instant Ratings Determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance | |
| Portfolio Suggestion Get suggestions outside of your existing asset allocation including your own model portfolios | |
| Headlines Timeline Stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity |