Correlation Between Southwest Airlines and Brunswick

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

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

Diversification Opportunities for Southwest Airlines and Brunswick

-0.56

Correlation Coefficient

Southwest Airlines  Brunswick

Excellent diversification

The 3 months correlation between Southwest and Brunswick is -0.56. Overlapping area represents the amount of risk that can be diversified away by holding Southwest Airlines and Brunswick in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Brunswick 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 Brunswick. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Brunswick has no effect on the direction of Southwest Airlines i.e., Southwest Airlines and Brunswick go up and down completely randomly.

Pair Corralation between Southwest Airlines and Brunswick

Considering the 90-day investment horizon Southwest Airlines is expected to generate 1.17 times more return on investment than Brunswick. However, Southwest Airlines is 1.17 times more volatile than Brunswick. It trades about 0.2 of its potential returns per unit of risk. Brunswick is currently generating about -0.82 per unit of risk. If you would invest  3,236  in Southwest Airlines on September 28, 2024 and sell it today you would earn a total of  183.00  from holding Southwest Airlines or generate 5.66% return on investment over 90 days.

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

Southwest Airlines  vs.  Brunswick

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 conflicting basic indicators, Southwest Airlines showed solid returns over the last few months and may actually be approaching a breakup point.

Brunswick

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Brunswick has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's fundamental indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Southwest Airlines and Brunswick

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

The idea behind Southwest Airlines and Brunswick 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.