Correlation Between Delta Air and Chevron Corp

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

Diversification Opportunities for Delta Air and Chevron Corp

0.76

Correlation Coefficient

Delta Air  Chevron Corp

Poor diversification

The 3 months correlation between Delta and Chevron is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Delta Air Lines and Chevron Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chevron Corp 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 Chevron Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chevron Corp has no effect on the direction of Delta Air i.e., Delta Air and Chevron Corp go up and down completely randomly.

Pair Corralation between Delta Air and Chevron Corp

Assuming the 90 days trading horizon Delta Air Lines is expected to generate 1.38 times more return on investment than Chevron Corp. However, Delta Air is 1.38 times more volatile than Chevron Corp. It trades about 0.18 of its potential returns per unit of risk. Chevron Corp is currently generating about 0.13 per unit of risk. If you would invest  109,300  in Delta Air Lines on October 24, 2024 and sell it today you would earn a total of  31,703  from holding Delta Air Lines or generate 29.01% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.36%
Values	Daily Returns

Delta Air Lines  vs.  Chevron Corp

Delta Air Lines

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Delta Air Lines are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak essential indicators, Delta Air showed solid returns over the last few months and may actually be approaching a breakup point.

Chevron Corp

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Chevron Corp are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Chevron Corp showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Delta Air and Chevron Corp

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

The idea behind Delta Air Lines and Chevron Corp 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.