Correlation Between Delta Air and PulteGroup

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

Diversification Opportunities for Delta Air and PulteGroup

-0.42

Correlation Coefficient

Delta Air  PulteGroup

Very good diversification

The 3 months correlation between Delta and PulteGroup is -0.42. Overlapping area represents the amount of risk that can be diversified away by holding Delta Air Lines and PulteGroup in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PulteGroup 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 PulteGroup. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PulteGroup has no effect on the direction of Delta Air i.e., Delta Air and PulteGroup go up and down completely randomly.

Pair Corralation between Delta Air and PulteGroup

Assuming the 90 days trading horizon Delta Air Lines is expected to generate 1.05 times more return on investment than PulteGroup. However, Delta Air is 1.05 times more volatile than PulteGroup. It trades about 0.2 of its potential returns per unit of risk. PulteGroup is currently generating about -0.11 per unit of risk. If you would invest  103,000  in Delta Air Lines on October 12, 2024 and sell it today you would earn a total of  35,300  from holding Delta Air Lines or generate 34.27% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.36%
Values	Daily Returns

Delta Air Lines  vs.  PulteGroup

Delta Air Lines

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Delta Air Lines are ranked lower than 15 (%) 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.

PulteGroup

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days PulteGroup 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 primary indicators remain fairly strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Delta Air and PulteGroup

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

The idea behind Delta Air Lines and PulteGroup 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.