Correlation Between Steel Dynamics and Delta Air

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

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

Diversification Opportunities for Steel Dynamics and Delta Air

0.87

Correlation Coefficient

Steel Dynamics  Delta Air

Very poor diversification

The 3 months correlation between Steel and Delta is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Steel Dynamics 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 Steel Dynamics 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 Steel Dynamics 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 Steel Dynamics i.e., Steel Dynamics and Delta Air go up and down completely randomly.

Pair Corralation between Steel Dynamics and Delta Air

Assuming the 90 days trading horizon Steel Dynamics is expected to generate 1.42 times more return on investment than Delta Air. However, Steel Dynamics is 1.42 times more volatile than Delta Air Lines. It trades about 0.06 of its potential returns per unit of risk. Delta Air Lines is currently generating about 0.07 per unit of risk. If you would invest  177,702  in Steel Dynamics on October 4, 2024 and sell it today you would earn a total of  125,365  from holding Steel Dynamics or generate 70.55% return on investment over 90 days.

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

Steel Dynamics  vs.  Delta Air Lines

Steel Dynamics

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Steel Dynamics are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Steel Dynamics showed solid returns over the last few months and may actually be approaching a breakup point.

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. In spite of fairly weak essential indicators, Delta Air showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Steel Dynamics and Delta Air

The main advantage of trading using opposite Steel Dynamics and Delta Air positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Steel Dynamics 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 Steel Dynamics 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.