Correlation Between Delta Air and Vertex Pharmaceuticals

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

Diversification Opportunities for Delta Air and Vertex Pharmaceuticals

0.26

Correlation Coefficient

Delta Air  Vertex Pharmaceuticals

Modest diversification

The 3 months correlation between Delta and Vertex is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding Delta Air Lines and Vertex Pharmaceuticals Incorpo in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vertex Pharmaceuticals 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 Vertex Pharmaceuticals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vertex Pharmaceuticals has no effect on the direction of Delta Air i.e., Delta Air and Vertex Pharmaceuticals go up and down completely randomly.

Pair Corralation between Delta Air and Vertex Pharmaceuticals

Assuming the 90 days horizon Delta Air Lines is expected to generate 0.28 times more return on investment than Vertex Pharmaceuticals. However, Delta Air Lines is 3.52 times less risky than Vertex Pharmaceuticals. It trades about -0.23 of its potential returns per unit of risk. Vertex Pharmaceuticals Incorporated is currently generating about -0.15 per unit of risk. If you would invest  5,905  in Delta Air Lines on October 8, 2024 and sell it today you would lose (233.00) from holding Delta Air Lines or give up 3.95% of portfolio value over 90 days.

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

Delta Air Lines  vs.  Vertex Pharmaceuticals Incorpo

Delta Air Lines

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Delta Air Lines are ranked lower than 13 (%) 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.

Vertex Pharmaceuticals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vertex Pharmaceuticals Incorporated has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Vertex Pharmaceuticals 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 Vertex Pharmaceuticals

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

The idea behind Delta Air Lines and Vertex Pharmaceuticals Incorporated 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.