Correlation Between Southwest Airlines and Greenway Technologies

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

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

Diversification Opportunities for Southwest Airlines and Greenway Technologies

0.24

Correlation Coefficient

Southwest Airlines  Greenway Technologies

Modest diversification

The 3 months correlation between Southwest and Greenway is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding Southwest Airlines and Greenway Technologies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Greenway Technologies 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 Greenway Technologies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Greenway Technologies has no effect on the direction of Southwest Airlines i.e., Southwest Airlines and Greenway Technologies go up and down completely randomly.

Pair Corralation between Southwest Airlines and Greenway Technologies

Considering the 90-day investment horizon Southwest Airlines is expected to under-perform the Greenway Technologies. But the stock apears to be less risky and, when comparing its historical volatility, Southwest Airlines is 6.54 times less risky than Greenway Technologies. The stock trades about -0.03 of its potential returns per unit of risk. The Greenway Technologies is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  1.00  in Greenway Technologies on January 24, 2024 and sell it today you would earn a total of  0.00  from holding Greenway Technologies or generate 0.0% return on investment over 90 days.

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

Southwest Airlines  vs.  Greenway Technologies

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.

Greenway Technologies

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Greenway Technologies has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong basic indicators, Greenway Technologies is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Southwest Airlines and Greenway Technologies

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

The idea behind Southwest Airlines and Greenway Technologies 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.