Correlation Between Delta Air and Applied Materials

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

Diversification Opportunities for Delta Air and Applied Materials

0.88

Correlation Coefficient

Delta Air  Applied Materials

Very poor diversification

The 3 months correlation between Delta and Applied is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Delta Air Lines and Applied Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Applied Materials 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 Applied Materials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Applied Materials has no effect on the direction of Delta Air i.e., Delta Air and Applied Materials go up and down completely randomly.

Pair Corralation between Delta Air and Applied Materials

Assuming the 90 days trading horizon Delta Air Lines is expected to under-perform the Applied Materials. In addition to that, Delta Air is 1.29 times more volatile than Applied Materials. It trades about -0.17 of its total potential returns per unit of risk. Applied Materials is currently generating about -0.07 per unit of volatility. If you would invest  337,726  in Applied Materials on December 30, 2024 and sell it today you would lose (35,526) from holding Applied Materials or give up 10.52% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.41%
Values	Daily Returns

Delta Air Lines  vs.  Applied Materials

Delta Air Lines

Risk-Adjusted Performance

Very Weak

Over the last 90 days Delta Air Lines has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's essential indicators remain fairly strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Applied Materials

Risk-Adjusted Performance

Very Weak

Over the last 90 days Applied Materials has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Delta Air and Applied Materials

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

The idea behind Delta Air Lines and Applied Materials 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.