Correlation Between Southwest Airlines and Sun Communities

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

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

Diversification Opportunities for Southwest Airlines and Sun Communities

0.43

Correlation Coefficient

Southwest Airlines  Sun Communities

Very weak diversification

The 3 months correlation between Southwest and Sun is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding Southwest Airlines Co and Sun Communities in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sun Communities and Southwest Airlines 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 Southwest Airlines Co are associated (or correlated) with Sun Communities. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sun Communities has no effect on the direction of Southwest Airlines i.e., Southwest Airlines and Sun Communities go up and down completely randomly.

Pair Corralation between Southwest Airlines and Sun Communities

Assuming the 90 days horizon Southwest Airlines Co is expected to generate 1.38 times more return on investment than Sun Communities. However, Southwest Airlines is 1.38 times more volatile than Sun Communities. It trades about 0.25 of its potential returns per unit of risk. Sun Communities is currently generating about 0.03 per unit of risk. 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	Weak
Accuracy	100.0%
Values	Daily Returns

Southwest Airlines Co  vs.  Sun Communities

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.

Sun Communities

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Sun Communities are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Sun Communities is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Southwest Airlines and Sun Communities

The main advantage of trading using opposite Southwest Airlines and Sun Communities positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Southwest Airlines position performs unexpectedly, Sun Communities 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 Sun Communities will offset losses from the drop in Sun Communities' long position.

The idea behind Southwest Airlines Co and Sun Communities 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..