Correlation Between GMxico Transportes and Southwest Airlines

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

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

Diversification Opportunities for GMxico Transportes and Southwest Airlines

-0.59

Correlation Coefficient

GMxico Transportes  Southwest Airlines

Excellent diversification

The 3 months correlation between GMxico and Southwest is -0.59. Overlapping area represents the amount of risk that can be diversified away by holding GMxico Transportes SAB and Southwest Airlines in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Southwest Airlines and GMxico Transportes 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 GMxico Transportes SAB 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 GMxico Transportes i.e., GMxico Transportes and Southwest Airlines go up and down completely randomly.

Pair Corralation between GMxico Transportes and Southwest Airlines

Assuming the 90 days trading horizon GMxico Transportes SAB is expected to under-perform the Southwest Airlines. In addition to that, GMxico Transportes is 1.15 times more volatile than Southwest Airlines. It trades about -0.03 of its total potential returns per unit of risk. Southwest Airlines is currently generating about 0.14 per unit of volatility. If you would invest  56,452  in Southwest Airlines on September 2, 2024 and sell it today you would earn a total of  9,268  from holding Southwest Airlines or generate 16.42% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.41%
Values	Daily Returns

GMxico Transportes SAB  vs.  Southwest Airlines

GMxico Transportes SAB

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days GMxico Transportes SAB has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, GMxico Transportes is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Southwest Airlines

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Southwest Airlines are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Southwest Airlines showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with GMxico Transportes and Southwest Airlines

The main advantage of trading using opposite GMxico Transportes and Southwest Airlines positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GMxico Transportes 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 GMxico Transportes SAB and Southwest Airlines 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .