Correlation Between National Bank and SOUTHWEST AIRLINES

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

By analyzing existing cross correlation between National Bank Holdings and SOUTHWEST AIRLINES, you can compare the effects of market volatilities on National Bank 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 National Bank with a short position of SOUTHWEST AIRLINES. Check out your portfolio center. Please also check ongoing floating volatility patterns of National Bank and SOUTHWEST AIRLINES.

Diversification Opportunities for National Bank and SOUTHWEST AIRLINES

0.81

Correlation Coefficient

National Bank  SOUTHWEST AIRLINES

Very poor diversification

The 3 months correlation between National and SOUTHWEST is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding National Bank Holdings and SOUTHWEST AIRLINES in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SOUTHWEST AIRLINES and National Bank 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 National Bank Holdings 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 National Bank i.e., National Bank and SOUTHWEST AIRLINES go up and down completely randomly.

Pair Corralation between National Bank and SOUTHWEST AIRLINES

Assuming the 90 days horizon National Bank Holdings is expected to under-perform the SOUTHWEST AIRLINES. But the stock apears to be less risky and, when comparing its historical volatility, National Bank Holdings is 1.24 times less risky than SOUTHWEST AIRLINES. The stock trades about -0.45 of its potential returns per unit of risk. The SOUTHWEST AIRLINES is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  3,052  in SOUTHWEST AIRLINES on September 27, 2024 and sell it today you would earn a total of  177.00  from holding SOUTHWEST AIRLINES or generate 5.8% return on investment over 90 days.

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

National Bank Holdings  vs.  SOUTHWEST AIRLINES

National Bank Holdings

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in National Bank Holdings are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, National Bank reported solid returns over the last few months and may actually be approaching a breakup point.

SOUTHWEST AIRLINES

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in SOUTHWEST AIRLINES are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, SOUTHWEST AIRLINES unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with National Bank and SOUTHWEST AIRLINES

The main advantage of trading using opposite National Bank and SOUTHWEST AIRLINES positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if National Bank 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's long position.

The idea behind National Bank Holdings 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.