Correlation Between NAKED WINES and Southwest Airlines

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

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

Diversification Opportunities for NAKED WINES and Southwest Airlines

0.01

Correlation Coefficient

NAKED WINES  Southwest Airlines

Significant diversification

The 3 months correlation between NAKED and Southwest is 0.01. Overlapping area represents the amount of risk that can be diversified away by holding NAKED WINES PLC and Southwest Airlines Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Southwest Airlines and NAKED WINES 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 NAKED WINES PLC 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 NAKED WINES i.e., NAKED WINES and Southwest Airlines go up and down completely randomly.

Pair Corralation between NAKED WINES and Southwest Airlines

Assuming the 90 days horizon NAKED WINES PLC is expected to under-perform the Southwest Airlines. In addition to that, NAKED WINES is 1.64 times more volatile than Southwest Airlines Co. It trades about -0.01 of its total potential returns per unit of risk. Southwest Airlines Co is currently generating about 0.14 per unit of volatility. If you would invest  2,591  in Southwest Airlines Co on September 3, 2024 and sell it today you would earn a total of  456.00  from holding Southwest Airlines Co or generate 17.6% return on investment over 90 days.

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

NAKED WINES PLC  vs.  Southwest Airlines Co

NAKED WINES PLC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days NAKED WINES PLC has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, NAKED WINES is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Southwest Airlines

Risk-Adjusted Performance

11 of 100

Good

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

Pair Trading with NAKED WINES and Southwest Airlines

The main advantage of trading using opposite NAKED WINES and Southwest Airlines positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NAKED WINES 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 NAKED WINES PLC 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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.