Correlation Between Delta Air and SMA Solar

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Can any of the company-specific risk be diversified away by investing in both Delta Air and SMA Solar 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 SMA Solar 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 SMA Solar Technology, you can compare the effects of market volatilities on Delta Air and SMA Solar 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 SMA Solar. Check out your portfolio center. Please also check ongoing floating volatility patterns of Delta Air and SMA Solar.

Diversification Opportunities for Delta Air and SMA Solar

-0.39
  Correlation Coefficient

Very good diversification

The 3 months correlation between Delta and SMA is -0.39. Overlapping area represents the amount of risk that can be diversified away by holding Delta Air Lines and SMA Solar Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SMA Solar Technology 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 SMA Solar. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SMA Solar Technology has no effect on the direction of Delta Air i.e., Delta Air and SMA Solar go up and down completely randomly.

Pair Corralation between Delta Air and SMA Solar

Assuming the 90 days trading horizon Delta Air Lines is expected to generate 0.56 times more return on investment than SMA Solar. However, Delta Air Lines is 1.78 times less risky than SMA Solar. It trades about 0.16 of its potential returns per unit of risk. SMA Solar Technology is currently generating about 0.01 per unit of risk. If you would invest  5,445  in Delta Air Lines on October 24, 2024 and sell it today you would earn a total of  1,314  from holding Delta Air Lines or generate 24.13% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy98.39%
ValuesDaily Returns

Delta Air Lines  vs.  SMA Solar Technology

 Performance 
       Timeline  
Delta Air Lines 

Risk-Adjusted Performance

12 of 100

 
Weak
 
Strong
Good
Compared to the overall equity markets, risk-adjusted returns on investments in Delta Air Lines are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Delta Air unveiled solid returns over the last few months and may actually be approaching a breakup point.
SMA Solar Technology 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days SMA Solar Technology has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, SMA Solar is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Delta Air and SMA Solar Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Delta Air and SMA Solar

The main advantage of trading using opposite Delta Air and SMA Solar positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Delta Air position performs unexpectedly, SMA Solar 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 SMA Solar will offset losses from the drop in SMA Solar's long position.
The idea behind Delta Air Lines and SMA Solar Technology 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.

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