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
0.37 | Correlation Coefficient |
Weak diversification
The 3 months correlation between Southwest and Nomura is 0.37. 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 is expected to generate 2.43 times less return on investment than Nomura Holdings. In addition to that, Southwest Airlines is 1.94 times more volatile than Nomura Holdings. It trades about 0.05 of its total potential returns per unit of risk. Nomura Holdings is currently generating about 0.24 per unit of volatility. If you would invest 2,961 in Nomura Holdings on March 5, 2024 and sell it today you would earn a total of 186.00 from holding Nomura Holdings or generate 6.28% 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 Co vs. Nomura Holdings
Performance |
Timeline |
Southwest Airlines |
Nomura Holdings |
Southwest Airlines and Nomura Holdings Volatility Contrast
Predicted Return Density |
Returns |
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.Nomura Holdings vs. B3 SA | Nomura Holdings vs. Petro Rio SA | Nomura Holdings vs. Eneva SA | Nomura Holdings vs. Cosan SA |
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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..
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