Correlation Between SOUTHWEST AIRLINES and China Eastern

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

By analyzing existing cross correlation between SOUTHWEST AIRLINES and China Eastern Airlines, you can compare the effects of market volatilities on SOUTHWEST AIRLINES and China Eastern 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 China Eastern. Check out your portfolio center. Please also check ongoing floating volatility patterns of SOUTHWEST AIRLINES and China Eastern.

Diversification Opportunities for SOUTHWEST AIRLINES and China Eastern

0.61

Correlation Coefficient

SOUTHWEST AIRLINES  China Eastern

Poor diversification

The 3 months correlation between SOUTHWEST and China is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding SOUTHWEST AIRLINES and China Eastern Airlines in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Eastern Airlines 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 are associated (or correlated) with China Eastern. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Eastern Airlines has no effect on the direction of SOUTHWEST AIRLINES i.e., SOUTHWEST AIRLINES and China Eastern go up and down completely randomly.

Pair Corralation between SOUTHWEST AIRLINES and China Eastern

Assuming the 90 days trading horizon SOUTHWEST AIRLINES is expected to generate 0.7 times more return on investment than China Eastern. However, SOUTHWEST AIRLINES is 1.43 times less risky than China Eastern. It trades about 0.28 of its potential returns per unit of risk. China Eastern Airlines is currently generating about 0.08 per unit of risk. If you would invest  2,127  in SOUTHWEST AIRLINES on April 22, 2025 and sell it today you would earn a total of  1,020  from holding SOUTHWEST AIRLINES or generate 47.95% return on investment over 90 days.

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

SOUTHWEST AIRLINES  vs.  China Eastern Airlines

SOUTHWEST AIRLINES

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in SOUTHWEST AIRLINES are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, SOUTHWEST AIRLINES unveiled solid returns over the last few months and may actually be approaching a breakup point.

China Eastern Airlines

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in China Eastern Airlines are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, China Eastern reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with SOUTHWEST AIRLINES and China Eastern

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

The idea behind SOUTHWEST AIRLINES and China Eastern 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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.