Correlation Between Delta Air and Pershing Square

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

Diversification Opportunities for Delta Air and Pershing Square

-0.04

Correlation Coefficient

Delta Air  Pershing Square

Good diversification

The 3 months correlation between Delta and Pershing is -0.04. Overlapping area represents the amount of risk that can be diversified away by holding Delta Air Lines and Pershing Square Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pershing Square Holdings 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 Pershing Square. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pershing Square Holdings has no effect on the direction of Delta Air i.e., Delta Air and Pershing Square go up and down completely randomly.

Pair Corralation between Delta Air and Pershing Square

Considering the 90-day investment horizon Delta Air Lines is expected to generate 1.82 times more return on investment than Pershing Square. However, Delta Air is 1.82 times more volatile than Pershing Square Holdings. It trades about 0.22 of its potential returns per unit of risk. Pershing Square Holdings is currently generating about 0.08 per unit of risk. If you would invest  4,519  in Delta Air Lines on September 14, 2024 and sell it today you would earn a total of  1,641  from holding Delta Air Lines or generate 36.31% return on investment over 90 days.

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

Delta Air Lines  vs.  Pershing Square Holdings

Delta Air Lines

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Delta Air Lines are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting basic indicators, Delta Air disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pershing Square Holdings

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Pershing Square Holdings are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Pershing Square is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Delta Air and Pershing Square

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

The idea behind Delta Air Lines and Pershing Square Holdings 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.