Correlation Between Southwest Airlines and TOREX SEMICONDUCTOR

Can any of the company-specific risk be diversified away by investing in both Southwest Airlines and TOREX SEMICONDUCTOR 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 TOREX SEMICONDUCTOR 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 TOREX SEMICONDUCTOR LTD, you can compare the effects of market volatilities on Southwest Airlines and TOREX SEMICONDUCTOR 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 TOREX SEMICONDUCTOR. Check out your portfolio center. Please also check ongoing floating volatility patterns of Southwest Airlines and TOREX SEMICONDUCTOR.

Diversification Opportunities for Southwest Airlines and TOREX SEMICONDUCTOR

-0.82

Correlation Coefficient

Southwest Airlines  TOREX SEMICONDUCTOR

Pay attention - limited upside

The 3 months correlation between Southwest and TOREX is -0.82. Overlapping area represents the amount of risk that can be diversified away by holding Southwest Airlines Co and TOREX SEMICONDUCTOR LTD in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TOREX SEMICONDUCTOR LTD 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 TOREX SEMICONDUCTOR. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TOREX SEMICONDUCTOR LTD has no effect on the direction of Southwest Airlines i.e., Southwest Airlines and TOREX SEMICONDUCTOR go up and down completely randomly.

Pair Corralation between Southwest Airlines and TOREX SEMICONDUCTOR

Assuming the 90 days horizon Southwest Airlines Co is expected to generate 0.67 times more return on investment than TOREX SEMICONDUCTOR. However, Southwest Airlines Co is 1.5 times less risky than TOREX SEMICONDUCTOR. It trades about 0.08 of its potential returns per unit of risk. TOREX SEMICONDUCTOR LTD is currently generating about -0.09 per unit of risk. If you would invest  2,593  in Southwest Airlines Co on September 15, 2024 and sell it today you would earn a total of  574.00  from holding Southwest Airlines Co or generate 22.14% return on investment over 90 days.

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

Southwest Airlines Co  vs.  TOREX SEMICONDUCTOR LTD

Southwest Airlines

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Southwest Airlines Co are ranked lower than 13 (%) 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.

TOREX SEMICONDUCTOR LTD

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days TOREX SEMICONDUCTOR LTD has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Southwest Airlines and TOREX SEMICONDUCTOR

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

The idea behind Southwest Airlines Co and TOREX SEMICONDUCTOR LTD 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.