Correlation Between GM and Delta Air
Can any of the company-specific risk be diversified away by investing in both GM and Delta Air 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 GM and Delta Air into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and Delta Air Lines, you can compare the effects of market volatilities on GM and Delta Air 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 GM with a short position of Delta Air. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Delta Air.
Diversification Opportunities for GM and Delta Air
Almost no diversification
The 3 months correlation between GM and Delta is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Delta Air Lines in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Delta Air Lines and GM 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 General Motors are associated (or correlated) with Delta Air. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Delta Air Lines has no effect on the direction of GM i.e., GM and Delta Air go up and down completely randomly.
Pair Corralation between GM and Delta Air
Allowing for the 90-day total investment horizon GM is expected to generate 1.8 times less return on investment than Delta Air. But when comparing it to its historical volatility, General Motors is 1.11 times less risky than Delta Air. It trades about 0.17 of its potential returns per unit of risk. Delta Air Lines is currently generating about 0.27 of returns per unit of risk over similar time horizon. If you would invest 4,048 in Delta Air Lines on February 11, 2024 and sell it today you would earn a total of 1,212 from holding Delta Air Lines or generate 29.94% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
General Motors vs. Delta Air Lines
Performance |
| Timeline |
| General Motors |
| Delta Air Lines |
GM and Delta Air Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and Delta Air
The main advantage of trading using opposite GM and Delta Air positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, Delta Air 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 Delta Air will offset losses from the drop in Delta Air's long position.The idea behind General Motors and Delta Air Lines 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.| Delta Air vs. American Airlines Group | Delta Air vs. Southwest Airlines | Delta Air vs. JetBlue Airways Corp | Delta Air vs. Spirit Airlines |
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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..
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