Correlation Between Qantas Airways and Southwest Airlines

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

Diversification Opportunities for Qantas Airways and Southwest Airlines

0.9
  Correlation Coefficient

Almost no diversification

The 3 months correlation between Qantas and Southwest is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Qantas Airways ADR and Southwest Airlines in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Southwest Airlines and Qantas Airways 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 Qantas Airways ADR are associated (or correlated) with Southwest Airlines. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Southwest Airlines has no effect on the direction of Qantas Airways i.e., Qantas Airways and Southwest Airlines go up and down completely randomly.

Pair Corralation between Qantas Airways and Southwest Airlines

Assuming the 90 days horizon Qantas Airways ADR is expected to generate 1.17 times more return on investment than Southwest Airlines. However, Qantas Airways is 1.17 times more volatile than Southwest Airlines. It trades about -0.01 of its potential returns per unit of risk. Southwest Airlines is currently generating about -0.07 per unit of risk. If you would invest  1,869  in Qantas Airways ADR on April 2, 2022 and sell it today you would lose (353.00)  from holding Qantas Airways ADR or give up 18.89% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Strong
Accuracy99.66%
ValuesDaily Returns

Qantas Airways ADR  vs.  Southwest Airlines

 Performance (%) 
      Timeline 
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 abnormal performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in August 2022. The current disturbance may also be a sign of long term up-swing for the company investors.

Structure and Payout Changes

Forward Annual Dividend Yield
0.0467
Last Split Factor
2:1
Forward Annual Dividend Rate
0.89
Dividend Date
2020-09-11
Ex Dividend Date
2020-02-28
Last Split Date
2018-11-02

Qantas Price Channel

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 sluggish performance in the last few months, the Stock's basic indicators remain fairly stable which may send shares a bit higher in August 2022. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

Structure and Payout Changes

Forward Annual Dividend Yield
0.0213
Last Split Factor
3:2
Forward Annual Dividend Rate
0.72
Dividend Date
2020-03-25
Ex Dividend Date
2020-03-03
Last Split Date
2001-02-16

Southwest Price Channel

Qantas Airways and Southwest Airlines Volatility Contrast

 Predicted Return Density 
      Returns 

Pair Trading with Qantas Airways and Southwest Airlines

The main advantage of trading using opposite Qantas Airways and Southwest Airlines positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Qantas Airways position performs unexpectedly, Southwest Airlines 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 Southwest Airlines will offset losses from the drop in Southwest Airlines' long position.
The idea behind Qantas Airways ADR and Southwest Airlines 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.
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 Watchlist Optimization module to optimize watchlists to build efficient portfolio or rebalance existing positions based on mean-variance optimization algorithm.

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