Correlation Between SOUTHWEST AIRLINES and Trimble

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

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

Diversification Opportunities for SOUTHWEST AIRLINES and Trimble

0.94

Correlation Coefficient

SOUTHWEST AIRLINES  Trimble

Almost no diversification

The 3 months correlation between SOUTHWEST and Trimble is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding SOUTHWEST AIRLINES and Trimble in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Trimble 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 Trimble. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Trimble has no effect on the direction of SOUTHWEST AIRLINES i.e., SOUTHWEST AIRLINES and Trimble go up and down completely randomly.

Pair Corralation between SOUTHWEST AIRLINES and Trimble

Assuming the 90 days trading horizon SOUTHWEST AIRLINES is expected to generate 1.15 times less return on investment than Trimble. But when comparing it to its historical volatility, SOUTHWEST AIRLINES is 1.44 times less risky than Trimble. It trades about 0.18 of its potential returns per unit of risk. Trimble is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  5,474  in Trimble on September 27, 2024 and sell it today you would earn a total of  1,348  from holding Trimble or generate 24.63% return on investment over 90 days.

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

SOUTHWEST AIRLINES  vs.  Trimble

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.

Trimble

Risk-Adjusted Performance

11 of 100

Good

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

Pair Trading with SOUTHWEST AIRLINES and Trimble

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

The idea behind SOUTHWEST AIRLINES and Trimble 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.