Correlation Between Citigroup and Southwest Airlines

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

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

Diversification Opportunities for Citigroup and Southwest Airlines

0.9

Correlation Coefficient

Citigroup  Southwest Airlines

Almost no diversification

The 3 months correlation between Citigroup and Southwest is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Citigroup and Southwest Airlines Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Southwest Airlines and Citigroup 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 Citigroup 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 Citigroup i.e., Citigroup and Southwest Airlines go up and down completely randomly.

Pair Corralation between Citigroup and Southwest Airlines

Assuming the 90 days trading horizon Citigroup is expected to under-perform the Southwest Airlines. But the stock apears to be less risky and, when comparing its historical volatility, Citigroup is 1.44 times less risky than Southwest Airlines. The stock trades about -0.02 of its potential returns per unit of risk. The Southwest Airlines Co is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  3,244  in Southwest Airlines Co on September 25, 2024 and sell it today you would earn a total of  193.00  from holding Southwest Airlines Co or generate 5.95% return on investment over 90 days.

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

Citigroup  vs.  Southwest Airlines Co

Citigroup

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Citigroup are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Citigroup unveiled solid returns over the last few months and may actually be approaching a breakup point.

Southwest Airlines

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Southwest Airlines Co are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Southwest Airlines unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Citigroup and Southwest Airlines

The main advantage of trading using opposite Citigroup and Southwest Airlines positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Citigroup 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.

The idea behind Citigroup and Southwest Airlines Co 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.