Correlation Between Nippon Steel and Delta Air

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

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

Diversification Opportunities for Nippon Steel and Delta Air

-0.47

Correlation Coefficient

Nippon Steel  Delta Air

Very good diversification

The 3 months correlation between Nippon and Delta is -0.47. Overlapping area represents the amount of risk that can be diversified away by holding Nippon Steel 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 Nippon Steel 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 Nippon Steel 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 Nippon Steel i.e., Nippon Steel and Delta Air go up and down completely randomly.

Pair Corralation between Nippon Steel and Delta Air

Assuming the 90 days trading horizon Nippon Steel is expected to generate 0.44 times more return on investment than Delta Air. However, Nippon Steel is 2.26 times less risky than Delta Air. It trades about 0.11 of its potential returns per unit of risk. Delta Air Lines is currently generating about -0.14 per unit of risk. If you would invest  1,913  in Nippon Steel on December 29, 2024 and sell it today you would earn a total of  184.00  from holding Nippon Steel or generate 9.62% return on investment over 90 days.

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

Nippon Steel  vs.  Delta Air Lines

Nippon Steel

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Nippon Steel are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, Nippon Steel may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Delta Air Lines

Risk-Adjusted Performance

Very Weak

Over the last 90 days Delta Air Lines has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unfluctuating performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Nippon Steel and Delta Air

The main advantage of trading using opposite Nippon Steel and Delta Air positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Nippon Steel 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 Nippon Steel 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.

Check out your portfolio center.

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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.