Correlation Between CN MODERN and SOUTHWEST AIRLINES

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

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

Diversification Opportunities for CN MODERN and SOUTHWEST AIRLINES

0.52

Correlation Coefficient

CN MODERN  SOUTHWEST AIRLINES

Very weak diversification

The 3 months correlation between 07M and SOUTHWEST is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding CN MODERN DAIRY and SOUTHWEST AIRLINES in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SOUTHWEST AIRLINES and CN MODERN 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 CN MODERN DAIRY 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 CN MODERN i.e., CN MODERN and SOUTHWEST AIRLINES go up and down completely randomly.

Pair Corralation between CN MODERN and SOUTHWEST AIRLINES

Assuming the 90 days trading horizon CN MODERN is expected to generate 1.55 times less return on investment than SOUTHWEST AIRLINES. In addition to that, CN MODERN is 1.7 times more volatile than SOUTHWEST AIRLINES. It trades about 0.09 of its total potential returns per unit of risk. SOUTHWEST AIRLINES is currently generating about 0.23 per unit of volatility. If you would invest  2,314  in SOUTHWEST AIRLINES on April 24, 2025 and sell it today you would earn a total of  848.00  from holding SOUTHWEST AIRLINES or generate 36.65% return on investment over 90 days.

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

CN MODERN DAIRY  vs.  SOUTHWEST AIRLINES

CN MODERN DAIRY

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in CN MODERN DAIRY are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain primary indicators, CN MODERN exhibited solid returns over the last few months and may actually be approaching a breakup point.

SOUTHWEST AIRLINES

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in SOUTHWEST AIRLINES are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, SOUTHWEST AIRLINES unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with CN MODERN and SOUTHWEST AIRLINES

The main advantage of trading using opposite CN MODERN and SOUTHWEST AIRLINES positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CN MODERN 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's long position.

The idea behind CN MODERN DAIRY 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.