Correlation Between Canadian Utilities and Southwest Airlines

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

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

Diversification Opportunities for Canadian Utilities and Southwest Airlines

0.34

Correlation Coefficient

Canadian Utilities  Southwest Airlines

Weak diversification

The 3 months correlation between Canadian and Southwest is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding Canadian Utilities Limited and Southwest Airlines Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Southwest Airlines and Canadian Utilities 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 Canadian Utilities Limited 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 Canadian Utilities i.e., Canadian Utilities and Southwest Airlines go up and down completely randomly.

Pair Corralation between Canadian Utilities and Southwest Airlines

Assuming the 90 days horizon Canadian Utilities is expected to generate 106.19 times less return on investment than Southwest Airlines. But when comparing it to its historical volatility, Canadian Utilities Limited is 3.32 times less risky than Southwest Airlines. It trades about 0.01 of its potential returns per unit of risk. Southwest Airlines Co is currently generating about 0.27 of returns per unit of risk over similar time horizon. If you would invest  2,214  in Southwest Airlines Co on April 23, 2025 and sell it today you would earn a total of  916.00  from holding Southwest Airlines Co or generate 41.37% return on investment over 90 days.

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

Canadian Utilities Limited  vs.  Southwest Airlines Co

Canadian Utilities

Risk-Adjusted Performance

Insignificant

Over the last 90 days Canadian Utilities Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Canadian Utilities is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Southwest Airlines

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Southwest Airlines Co are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Southwest Airlines reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Canadian Utilities and Southwest Airlines

The main advantage of trading using opposite Canadian Utilities and Southwest Airlines positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Canadian Utilities 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 Canadian Utilities Limited and Southwest Airlines Co 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.