Correlation Between Southwest Airlines and T Mobile

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

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

Diversification Opportunities for Southwest Airlines and T Mobile

0.56

Correlation Coefficient

Southwest Airlines  T Mobile

Very weak diversification

The 3 months correlation between Southwest and T1MU34 is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding Southwest Airlines Co and T Mobile in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on T Mobile 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 Co are associated (or correlated) with T Mobile. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of T Mobile has no effect on the direction of Southwest Airlines i.e., Southwest Airlines and T Mobile go up and down completely randomly.

Pair Corralation between Southwest Airlines and T Mobile

Assuming the 90 days trading horizon Southwest Airlines is expected to generate 2.99 times less return on investment than T Mobile. In addition to that, Southwest Airlines is 1.27 times more volatile than T Mobile. It trades about 0.07 of its total potential returns per unit of risk. T Mobile is currently generating about 0.25 per unit of volatility. If you would invest  56,637  in T Mobile on September 14, 2024 and sell it today you would earn a total of  13,713  from holding T Mobile or generate 24.21% return on investment over 90 days.

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

Southwest Airlines Co  vs.  T Mobile

Southwest Airlines

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Southwest Airlines Co are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Southwest Airlines may actually be approaching a critical reversion point that can send shares even higher in January 2025.

T Mobile

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in T Mobile are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak primary indicators, T Mobile sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Southwest Airlines and T Mobile

The main advantage of trading using opposite Southwest Airlines and T Mobile positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Southwest Airlines position performs unexpectedly, T Mobile 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 T Mobile will offset losses from the drop in T Mobile's long position.

The idea behind Southwest Airlines Co and T Mobile 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.