Correlation Between Delta Air and HSBC Holdings

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

Diversification Opportunities for Delta Air and HSBC Holdings

0.9

Correlation Coefficient

Delta Air  HSBC Holdings

Almost no diversification

The 3 months correlation between Delta and HSBC is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Delta Air Lines and HSBC Holdings plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HSBC Holdings plc 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 HSBC Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HSBC Holdings plc has no effect on the direction of Delta Air i.e., Delta Air and HSBC Holdings go up and down completely randomly.

Pair Corralation between Delta Air and HSBC Holdings

Assuming the 90 days trading horizon Delta Air Lines is expected to generate 1.98 times more return on investment than HSBC Holdings. However, Delta Air is 1.98 times more volatile than HSBC Holdings plc. It trades about 0.32 of its potential returns per unit of risk. HSBC Holdings plc is currently generating about 0.21 per unit of risk. If you would invest  23,813  in Delta Air Lines on September 4, 2024 and sell it today you would earn a total of  14,795  from holding Delta Air Lines or generate 62.13% return on investment over 90 days.

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

Delta Air Lines  vs.  HSBC Holdings plc

Delta Air Lines

Risk-Adjusted Performance

25 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Delta Air Lines are ranked lower than 25 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Delta Air sustained solid returns over the last few months and may actually be approaching a breakup point.

HSBC Holdings plc

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in HSBC Holdings plc are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, HSBC Holdings sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Delta Air and HSBC Holdings

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

The idea behind Delta Air Lines and HSBC Holdings plc 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.