Correlation Between Essex Property and Delta Air

Can any of the company-specific risk be diversified away by investing in both Essex Property and Delta Air 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 Essex Property and Delta Air into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Essex Property Trust and Delta Air Lines, you can compare the effects of market volatilities on Essex Property and Delta Air 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 Essex Property with a short position of Delta Air. Check out your portfolio center. Please also check ongoing floating volatility patterns of Essex Property and Delta Air.

Diversification Opportunities for Essex Property and Delta Air

0.83

Correlation Coefficient

Essex Property  Delta Air

Very poor diversification

The 3 months correlation between Essex and Delta is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Essex Property Trust and Delta Air Lines in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Delta Air Lines and Essex Property 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 Essex Property Trust are associated (or correlated) with Delta Air. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Delta Air Lines has no effect on the direction of Essex Property i.e., Essex Property and Delta Air go up and down completely randomly.

Pair Corralation between Essex Property and Delta Air

Assuming the 90 days trading horizon Essex Property is expected to generate 1.31 times less return on investment than Delta Air. But when comparing it to its historical volatility, Essex Property Trust is 1.4 times less risky than Delta Air. It trades about 0.08 of its potential returns per unit of risk. Delta Air Lines is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  34,918  in Delta Air Lines on October 9, 2024 and sell it today you would earn a total of  1,746  from holding Delta Air Lines or generate 5.0% return on investment over 90 days.

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

Essex Property Trust  vs.  Delta Air Lines

Essex Property Trust

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Essex Property Trust are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Essex Property may actually be approaching a critical reversion point that can send shares even higher in February 2025.

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. Despite somewhat weak basic indicators, Delta Air sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Essex Property and Delta Air

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

The idea behind Essex Property Trust and Delta Air Lines 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..