Correlation Between SOUTHWEST AIRLINES and Clean Energy
Can any of the company-specific risk be diversified away by investing in both SOUTHWEST AIRLINES and Clean Energy 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 Clean Energy into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between SOUTHWEST AIRLINES and Clean Energy Fuels, you can compare the effects of market volatilities on SOUTHWEST AIRLINES and Clean Energy 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 Clean Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of SOUTHWEST AIRLINES and Clean Energy.
Diversification Opportunities for SOUTHWEST AIRLINES and Clean Energy
0.02 | Correlation Coefficient |
Significant diversification
The 3 months correlation between SOUTHWEST and Clean is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding SOUTHWEST AIRLINES and Clean Energy Fuels in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Clean Energy Fuels 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 Clean Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Clean Energy Fuels has no effect on the direction of SOUTHWEST AIRLINES i.e., SOUTHWEST AIRLINES and Clean Energy go up and down completely randomly.
Pair Corralation between SOUTHWEST AIRLINES and Clean Energy
Assuming the 90 days trading horizon SOUTHWEST AIRLINES is expected to generate 1.65 times less return on investment than Clean Energy. But when comparing it to its historical volatility, SOUTHWEST AIRLINES is 2.71 times less risky than Clean Energy. It trades about 0.13 of its potential returns per unit of risk. Clean Energy Fuels is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest 237.00 in Clean Energy Fuels on September 21, 2024 and sell it today you would earn a total of 13.00 from holding Clean Energy Fuels or generate 5.49% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Insignificant |
Accuracy | 100.0% |
Values | Daily Returns |
SOUTHWEST AIRLINES vs. Clean Energy Fuels
Performance |
Timeline |
SOUTHWEST AIRLINES |
Clean Energy Fuels |
SOUTHWEST AIRLINES and Clean Energy Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with SOUTHWEST AIRLINES and Clean Energy
The main advantage of trading using opposite SOUTHWEST AIRLINES and Clean Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SOUTHWEST AIRLINES position performs unexpectedly, Clean Energy 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 Clean Energy will offset losses from the drop in Clean Energy's long position.The idea behind SOUTHWEST AIRLINES and Clean Energy Fuels 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.Clean Energy vs. Direct Line Insurance | Clean Energy vs. SOUTHWEST AIRLINES | Clean Energy vs. Selective Insurance Group | Clean Energy vs. Ping An Insurance |
Check out your portfolio center.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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.
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