Correlation Between Southwest Airlines and Nomura Holdings

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

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

Diversification Opportunities for Southwest Airlines and Nomura Holdings

0.16

Correlation Coefficient

Southwest Airlines  Nomura Holdings

Average diversification

The 3 months correlation between Southwest and Nomura is 0.16. Overlapping area represents the amount of risk that can be diversified away by holding Southwest Airlines Co and Nomura Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nomura 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 Co are associated (or correlated) with Nomura Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nomura Holdings has no effect on the direction of Southwest Airlines i.e., Southwest Airlines and Nomura Holdings go up and down completely randomly.

Pair Corralation between Southwest Airlines and Nomura Holdings

Assuming the 90 days trading horizon Southwest Airlines Co is expected to under-perform the Nomura Holdings. In addition to that, Southwest Airlines is 1.13 times more volatile than Nomura Holdings. It trades about -0.02 of its total potential returns per unit of risk. Nomura Holdings is currently generating about 0.07 per unit of volatility. If you would invest  1,769  in Nomura Holdings on February 21, 2024 and sell it today you would earn a total of  1,258  from holding Nomura Holdings or generate 71.11% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	91.16%
Values	Daily Returns

Southwest Airlines Co  vs.  Nomura Holdings

Southwest Airlines

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Southwest Airlines Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Southwest Airlines is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Nomura Holdings

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Nomura Holdings are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Nomura Holdings may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Pair Trading with Southwest Airlines and Nomura Holdings

The main advantage of trading using opposite Southwest Airlines and Nomura Holdings positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Southwest Airlines position performs unexpectedly, Nomura Holdings 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 Nomura Holdings will offset losses from the drop in Nomura Holdings' long position.

The idea behind Southwest Airlines Co and Nomura Holdings 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.