Correlation Between Southwest Airlines and Insight Acquisition

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

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

Diversification Opportunities for Southwest Airlines and Insight Acquisition

-0.23

Correlation Coefficient

Southwest Airlines  Insight Acquisition

Very good diversification

The 3 months correlation between Southwest and Insight is -0.23. Overlapping area represents the amount of risk that can be diversified away by holding Southwest Airlines and Insight Acquisition Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Insight Acquisition Corp 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 Insight Acquisition. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Insight Acquisition Corp has no effect on the direction of Southwest Airlines i.e., Southwest Airlines and Insight Acquisition go up and down completely randomly.

Pair Corralation between Southwest Airlines and Insight Acquisition

Considering the 90-day investment horizon Southwest Airlines is expected to generate 12.13 times less return on investment than Insight Acquisition. But when comparing it to its historical volatility, Southwest Airlines is 15.32 times less risky than Insight Acquisition. It trades about 0.09 of its potential returns per unit of risk. Insight Acquisition Corp is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  13.00  in Insight Acquisition Corp on September 30, 2024 and sell it today you would earn a total of  0.00  from holding Insight Acquisition Corp or generate 0.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	92.86%
Values	Daily Returns

Southwest Airlines  vs.  Insight Acquisition Corp

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.

Insight Acquisition Corp

Risk-Adjusted Performance

0 of 100

OK

Over the last 90 days Insight Acquisition Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly unfluctuating basic indicators, Insight Acquisition showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Southwest Airlines and Insight Acquisition

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

The idea behind Southwest Airlines and Insight Acquisition Corp 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.