Correlation Between Delta Air and American Airlines

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Can any of the company-specific risk be diversified away by investing in both Delta Air and American 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 Delta Air and American Airlines into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Delta Air Lines and American Airlines Group, you can compare the effects of market volatilities on Delta Air and American 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 Delta Air with a short position of American Airlines. Check out your portfolio center. Please also check ongoing floating volatility patterns of Delta Air and American Airlines.

Diversification Opportunities for Delta Air and American Airlines

0.49
  Correlation Coefficient

Very weak diversification

The 3 months correlation between Delta and American is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding Delta Air Lines and American Airlines Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Airlines and Delta Air 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 Delta Air Lines are associated (or correlated) with American Airlines. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Airlines has no effect on the direction of Delta Air i.e., Delta Air and American Airlines go up and down completely randomly.

Pair Corralation between Delta Air and American Airlines

Considering the 90-day investment horizon Delta Air Lines is expected to generate 0.82 times more return on investment than American Airlines. However, Delta Air Lines is 1.22 times less risky than American Airlines. It trades about 0.07 of its potential returns per unit of risk. American Airlines Group is currently generating about 0.03 per unit of risk. If you would invest  2,782  in Delta Air Lines on December 19, 2023 and sell it today you would earn a total of  1,562  from holding Delta Air Lines or generate 56.15% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

Delta Air Lines  vs.  American Airlines Group

 Performance 
       Timeline  
Delta Air Lines 

Risk-Adjusted Performance

3 of 100

 
Low
 
High
Insignificant
Compared to the overall equity markets, risk-adjusted returns on investments in Delta Air Lines are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite quite unsteady basic indicators, Delta Air may actually be approaching a critical reversion point that can send shares even higher in April 2024.
American Airlines 

Risk-Adjusted Performance

0 of 100

 
Low
 
High
Very Weak
Over the last 90 days American Airlines Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, American Airlines is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Delta Air and American Airlines Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Delta Air and American Airlines

The main advantage of trading using opposite Delta Air and American Airlines positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Delta Air position performs unexpectedly, American 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 American Airlines will offset losses from the drop in American Airlines' long position.
The idea behind Delta Air Lines and American Airlines Group 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.
Check out your portfolio center.
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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.

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