Correlation Between Target and Delta Air

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

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

Diversification Opportunities for Target and Delta Air

0.32

Correlation Coefficient

Target  Delta Air

Weak diversification

The 3 months correlation between Target and Delta is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding Target 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 Target 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 Target 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 Target i.e., Target and Delta Air go up and down completely randomly.

Pair Corralation between Target and Delta Air

Assuming the 90 days trading horizon Target is expected to under-perform the Delta Air. But the stock apears to be less risky and, when comparing its historical volatility, Target is 1.31 times less risky than Delta Air. The stock trades about -0.04 of its potential returns per unit of risk. The Delta Air Lines is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  127,791  in Delta Air Lines on December 4, 2024 and sell it today you would lose (691.00) from holding Delta Air Lines or give up 0.54% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.36%
Values	Daily Returns

Target  vs.  Delta Air Lines

Target

Risk-Adjusted Performance

Very Weak

Over the last 90 days Target has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Target is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

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. In spite of fairly strong essential indicators, Delta Air is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Target and Delta Air

The main advantage of trading using opposite Target and Delta Air positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Target 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 Target 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.