Correlation Between SOUTHWEST AIRLINES and Shenandoah Telecommunicatio

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

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

Diversification Opportunities for SOUTHWEST AIRLINES and Shenandoah Telecommunicatio

0.32

Correlation Coefficient

SOUTHWEST AIRLINES  Shenandoah Telecommunicatio

Weak diversification

The 3 months correlation between SOUTHWEST and Shenandoah is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding SOUTHWEST AIRLINES and Shenandoah Telecommunications in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shenandoah Telecommunicatio 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 Shenandoah Telecommunicatio. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shenandoah Telecommunicatio has no effect on the direction of SOUTHWEST AIRLINES i.e., SOUTHWEST AIRLINES and Shenandoah Telecommunicatio go up and down completely randomly.

Pair Corralation between SOUTHWEST AIRLINES and Shenandoah Telecommunicatio

Assuming the 90 days trading horizon SOUTHWEST AIRLINES is expected to generate 0.85 times more return on investment than Shenandoah Telecommunicatio. However, SOUTHWEST AIRLINES is 1.17 times less risky than Shenandoah Telecommunicatio. It trades about 0.25 of its potential returns per unit of risk. Shenandoah Telecommunications is currently generating about 0.09 per unit of risk. If you would invest  2,248  in SOUTHWEST AIRLINES on April 23, 2025 and sell it today you would earn a total of  894.00  from holding SOUTHWEST AIRLINES or generate 39.77% return on investment over 90 days.

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

SOUTHWEST AIRLINES  vs.  Shenandoah Telecommunications

SOUTHWEST AIRLINES

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in SOUTHWEST AIRLINES are ranked lower than 19 (%) 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.

Shenandoah Telecommunicatio

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Shenandoah Telecommunications are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Shenandoah Telecommunicatio reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with SOUTHWEST AIRLINES and Shenandoah Telecommunicatio

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

The idea behind SOUTHWEST AIRLINES and Shenandoah Telecommunications 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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.