Correlation Between DELTA AIR and Watsco

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

Diversification Opportunities for DELTA AIR and Watsco

0.85

Correlation Coefficient

DELTA AIR  Watsco

Very poor diversification

The 3 months correlation between DELTA and Watsco is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding DELTA AIR LINES and Watsco Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Watsco Inc 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 Watsco. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Watsco Inc has no effect on the direction of DELTA AIR i.e., DELTA AIR and Watsco go up and down completely randomly.

Pair Corralation between DELTA AIR and Watsco

Assuming the 90 days trading horizon DELTA AIR LINES is expected to generate 1.72 times more return on investment than Watsco. However, DELTA AIR is 1.72 times more volatile than Watsco Inc. It trades about -0.13 of its potential returns per unit of risk. Watsco Inc is currently generating about -0.57 per unit of risk. If you would invest  6,145  in DELTA AIR LINES on September 27, 2024 and sell it today you would lose (281.00) from holding DELTA AIR LINES or give up 4.57% of portfolio value over 90 days.

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

DELTA AIR LINES  vs.  Watsco Inc

DELTA AIR LINES

Risk-Adjusted Performance

13 of 100

Solid

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. In spite of comparatively uncertain basic indicators, DELTA AIR unveiled solid returns over the last few months and may actually be approaching a breakup point.

Watsco Inc

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Watsco Inc are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Watsco may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with DELTA AIR and Watsco

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

The idea behind DELTA AIR LINES and Watsco Inc 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.