Correlation Between Maple Leaf and Southwest Airlines

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

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

Diversification Opportunities for Maple Leaf and Southwest Airlines

0.62

Correlation Coefficient

Maple Leaf  Southwest Airlines

Poor diversification

The 3 months correlation between Maple and Southwest is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Maple Leaf Foods and Southwest Airlines Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Southwest Airlines and Maple Leaf 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 Maple Leaf Foods 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 Maple Leaf i.e., Maple Leaf and Southwest Airlines go up and down completely randomly.

Pair Corralation between Maple Leaf and Southwest Airlines

Assuming the 90 days trading horizon Maple Leaf is expected to generate 1.57 times less return on investment than Southwest Airlines. But when comparing it to its historical volatility, Maple Leaf Foods is 1.23 times less risky than Southwest Airlines. It trades about 0.19 of its potential returns per unit of risk. Southwest Airlines Co is currently generating about 0.25 of returns per unit of risk over similar time horizon. If you would invest  2,319  in Southwest Airlines Co on April 25, 2025 and sell it today you would earn a total of  809.00  from holding Southwest Airlines Co or generate 34.89% return on investment over 90 days.

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

Maple Leaf Foods  vs.  Southwest Airlines Co

Maple Leaf Foods

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Maple Leaf Foods are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, Maple Leaf unveiled 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 Co are ranked lower than 19 (%) 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 Maple Leaf and Southwest Airlines

The main advantage of trading using opposite Maple Leaf and Southwest Airlines positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Maple Leaf 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 Maple Leaf Foods 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.