Correlation Between Delta Air and NIKE

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

Diversification Opportunities for Delta Air and NIKE

-0.47

Correlation Coefficient

Delta Air  NIKE

Very good diversification

The 3 months correlation between Delta and NIKE is -0.47. Overlapping area represents the amount of risk that can be diversified away by holding Delta Air Lines and NIKE Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NIKE Inc 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 NIKE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NIKE Inc has no effect on the direction of Delta Air i.e., Delta Air and NIKE go up and down completely randomly.

Pair Corralation between Delta Air and NIKE

Assuming the 90 days trading horizon Delta Air Lines is expected to generate 1.83 times more return on investment than NIKE. However, Delta Air is 1.83 times more volatile than NIKE Inc. It trades about -0.08 of its potential returns per unit of risk. NIKE Inc is currently generating about -0.18 per unit of risk. If you would invest  130,932  in Delta Air Lines on September 26, 2024 and sell it today you would lose (4,366) from holding Delta Air Lines or give up 3.33% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Delta Air Lines  vs.  NIKE Inc

Delta Air Lines

Risk-Adjusted Performance

12 of 100

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 fairly weak essential indicators, Delta Air showed solid returns over the last few months and may actually be approaching a breakup point.

NIKE Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days NIKE Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's technical and fundamental 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 NIKE

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

The idea behind Delta Air Lines and NIKE Inc 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.