Correlation Between Delta Air and American Airlines

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

Diversification Opportunities for Delta Air and American Airlines

-0.47

Correlation Coefficient

Delta Air  American Airlines

Very good diversification

The 3 months correlation between Delta and American is -0.47. Overlapping area represents the amount of risk that can be diversified away by holding Delta Air Lines and American Airlines Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Airlines 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 American Airlines. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Airlines has no effect on the direction of Delta Air i.e., Delta Air and American Airlines go up and down completely randomly.

Pair Corralation between Delta Air and American Airlines

Considering the 90-day investment horizon Delta Air Lines is expected to generate 0.7 times more return on investment than American Airlines. However, Delta Air Lines is 1.43 times less risky than American Airlines. It trades about 0.12 of its potential returns per unit of risk. American Airlines Group is currently generating about -0.16 per unit of risk. If you would invest  4,822  in Delta Air Lines on January 31, 2024 and sell it today you would earn a total of  223.00  from holding Delta Air Lines or generate 4.62% return on investment over 90 days.

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

Delta Air Lines  vs.  American Airlines Group

Delta Air Lines

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Delta Air Lines are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting basic indicators, Delta Air disclosed solid returns over the last few months and may actually be approaching a breakup point.

American Airlines

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days American Airlines Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, American Airlines is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Delta Air and American Airlines

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

The idea behind Delta Air Lines and American Airlines Group 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.