Correlation Between Southwest Airlines and Qantas Airways

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Can any of the company-specific risk be diversified away by investing in both Southwest Airlines and Qantas Airways 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 Qantas Airways into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Southwest Airlines and Qantas Airways ADR, you can compare the effects of market volatilities on Southwest Airlines and Qantas Airways 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 Qantas Airways. Check out your portfolio center. Please also check ongoing floating volatility patterns of Southwest Airlines and Qantas Airways.

Diversification Opportunities for Southwest Airlines and Qantas Airways

0.83
  Correlation Coefficient

Very poor diversification

The 3 months correlation between Southwest and Qantas is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Southwest Airlines and Qantas Airways ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Qantas Airways ADR 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 Qantas Airways. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Qantas Airways ADR has no effect on the direction of Southwest Airlines i.e., Southwest Airlines and Qantas Airways go up and down completely randomly.

Pair Corralation between Southwest Airlines and Qantas Airways

Considering the 90-day investment horizon Southwest Airlines is expected to generate 1.57 times less return on investment than Qantas Airways. But when comparing it to its historical volatility, Southwest Airlines is 1.12 times less risky than Qantas Airways. It trades about 0.12 of its potential returns per unit of risk. Qantas Airways ADR is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  1,463  in Qantas Airways ADR on May 11, 2022 and sell it today you would earn a total of  146.00  from holding Qantas Airways ADR or generate 9.98% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy100.0%
ValuesDaily Returns

Southwest Airlines  vs.  Qantas Airways ADR

 Performance (%) 
       Timeline  
Southwest Airlines 
Southwest Performance
0 of 100
Over the last 90 days Southwest Airlines has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest sluggish performance, the Stock's basic indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the venture sophisticated investors.

Southwest Price Channel

Qantas Airways ADR 
Qantas Performance
0 of 100
Over the last 90 days Qantas Airways ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Qantas Price Channel

Southwest Airlines and Qantas Airways Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Southwest Airlines and Qantas Airways

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

Qantas Airways ADR

Pair trading matchups for Qantas Airways

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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.

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