Correlation Between Verizon Communications and Southwest Airlines
Can any of the company-specific risk be diversified away by investing in both Verizon Communications 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 Verizon Communications and Southwest Airlines into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Verizon Communications and Southwest Airlines, you can compare the effects of market volatilities on Verizon Communications 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 Verizon Communications with a short position of Southwest Airlines. Check out your portfolio center. Please also check ongoing floating volatility patterns of Verizon Communications and Southwest Airlines.
Diversification Opportunities for Verizon Communications and Southwest Airlines
-0.35 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Verizon and Southwest is -0.35. Overlapping area represents the amount of risk that can be diversified away by holding Verizon Communications and Southwest Airlines in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Southwest Airlines and Verizon Communications 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 Verizon Communications 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 Verizon Communications i.e., Verizon Communications and Southwest Airlines go up and down completely randomly.
Pair Corralation between Verizon Communications and Southwest Airlines
Allowing for the 90-day total investment horizon Verizon Communications is expected to under-perform the Southwest Airlines. But the stock apears to be less risky and, when comparing its historical volatility, Verizon Communications is 1.23 times less risky than Southwest Airlines. The stock trades about -0.05 of its potential returns per unit of risk. The Southwest Airlines is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest 2,851 in Southwest Airlines on January 25, 2024 and sell it today you would earn a total of 79.00 from holding Southwest Airlines or generate 2.77% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Verizon Communications vs. Southwest Airlines
Performance |
| Timeline |
| Verizon Communications |
| Southwest Airlines |
Verizon Communications and Southwest Airlines Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Verizon Communications and Southwest Airlines
The main advantage of trading using opposite Verizon Communications and Southwest Airlines positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Verizon Communications 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.| Verizon Communications vs. T Mobile | Verizon Communications vs. Lumen Technologies | Verizon Communications vs. Comcast Corp | Verizon Communications vs. ATT Inc |
| Southwest Airlines vs. United Airlines Holdings | Southwest Airlines vs. American Airlines Group | Southwest Airlines vs. JetBlue Airways Corp | Southwest 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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.
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