Correlation Between Delta Air and AIR CHINA

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

Diversification Opportunities for Delta Air and AIR CHINA

0.83

Correlation Coefficient

Delta Air  AIR CHINA

Very poor diversification

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

Pair Corralation between Delta Air and AIR CHINA

Assuming the 90 days horizon Delta Air Lines is expected to under-perform the AIR CHINA. But the stock apears to be less risky and, when comparing its historical volatility, Delta Air Lines is 1.81 times less risky than AIR CHINA. The stock trades about -0.13 of its potential returns per unit of risk. The AIR CHINA LTD is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  1,100  in AIR CHINA LTD on September 22, 2024 and sell it today you would earn a total of  130.00  from holding AIR CHINA LTD or generate 11.82% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	95.65%
Values	Daily Returns

Delta Air Lines  vs.  AIR CHINA LTD

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. Despite nearly fragile basic indicators, Delta Air reported solid returns over the last few months and may actually be approaching a breakup point.

AIR CHINA LTD

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in AIR CHINA LTD are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, AIR CHINA reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Delta Air and AIR CHINA

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

The idea behind Delta Air Lines and AIR CHINA LTD 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 Transaction History module to view history of all your transactions and understand their impact on performance.