Correlation Between Western Digital and Delta Air

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

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

Diversification Opportunities for Western Digital and Delta Air

0.81

Correlation Coefficient

Western Digital  Delta Air

Very poor diversification

The 3 months correlation between Western and Delta is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Western Digital 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 Western Digital 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 Western Digital 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 Western Digital i.e., Western Digital and Delta Air go up and down completely randomly.

Pair Corralation between Western Digital and Delta Air

Assuming the 90 days trading horizon Western Digital is expected to under-perform the Delta Air. In addition to that, Western Digital is 1.29 times more volatile than Delta Air Lines. It trades about -0.15 of its total potential returns per unit of risk. Delta Air Lines is currently generating about -0.13 per unit of volatility. If you would invest  124,233  in Delta Air Lines on December 27, 2024 and sell it today you would lose (27,592) from holding Delta Air Lines or give up 22.21% of portfolio value over 90 days.

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

Western Digital  vs.  Delta Air Lines

Western Digital

Risk-Adjusted Performance

Very Weak

Over the last 90 days Western Digital has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's fundamental indicators remain fairly strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company 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 weak performance in the last few months, the Stock's essential indicators remain fairly strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Western Digital and Delta Air

The main advantage of trading using opposite Western Digital and Delta Air positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Western Digital 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 Western Digital 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.