Correlation Between International Consolidated and Southwest Airlines

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

By analyzing existing cross correlation between International Consolidated Airlines and Southwest Airlines, you can compare the effects of market volatilities on International Consolidated 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 International Consolidated with a short position of Southwest Airlines. Check out your portfolio center. Please also check ongoing floating volatility patterns of International Consolidated and Southwest Airlines.

Diversification Opportunities for International Consolidated and Southwest Airlines

0.29

Correlation Coefficient

International Consolidated  Southwest Airlines

Modest diversification

The 3 months correlation between International and Southwest is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding International Consolidated Air and Southwest Airlines in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Southwest Airlines and International Consolidated 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 International Consolidated Airlines 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 International Consolidated i.e., International Consolidated and Southwest Airlines go up and down completely randomly.

Pair Corralation between International Consolidated and Southwest Airlines

Assuming the 90 days horizon International Consolidated Airlines is expected to generate 1.05 times more return on investment than Southwest Airlines. However, International Consolidated is 1.05 times more volatile than Southwest Airlines. It trades about -0.04 of its potential returns per unit of risk. Southwest Airlines is currently generating about -0.08 per unit of risk. If you would invest  355.00  in International Consolidated Airlines on January 17, 2025 and sell it today you would lose (49.00) from holding International Consolidated Airlines or give up 13.8% of portfolio value over 90 days.

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

International Consolidated Air  vs.  Southwest Airlines

International Consolidated

Risk-Adjusted Performance

Very Weak

Over the last 90 days International Consolidated Airlines has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Southwest Airlines

Risk-Adjusted Performance

Very Weak

Over the last 90 days Southwest Airlines has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of conflicting performance in the last few months, the Stock's basic indicators remain fairly stable which may send shares a bit higher in May 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

Pair Trading with International Consolidated and Southwest Airlines

The main advantage of trading using opposite International Consolidated and Southwest Airlines positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if International Consolidated 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 International Consolidated Airlines 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.

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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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.