Correlation Between Delta Air and Baltic Panamax

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

Diversification Opportunities for Delta Air and Baltic Panamax

-0.87

Correlation Coefficient

Delta Air  Baltic Panamax

Pay attention - limited upside

The 3 months correlation between Delta and Baltic is -0.87. Overlapping area represents the amount of risk that can be diversified away by holding Delta Air Lines and Baltic Panamax in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Baltic Panamax 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 Baltic Panamax. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Baltic Panamax has no effect on the direction of Delta Air i.e., Delta Air and Baltic Panamax go up and down completely randomly.

Pair Corralation between Delta Air and Baltic Panamax

Assuming the 90 days trading horizon Delta Air Lines is expected to generate 1.3 times more return on investment than Baltic Panamax. However, Delta Air is 1.3 times more volatile than Baltic Panamax. It trades about 0.18 of its potential returns per unit of risk. Baltic Panamax is currently generating about -0.29 per unit of risk. If you would invest  4,686  in Delta Air Lines on September 18, 2024 and sell it today you would earn a total of  1,391  from holding Delta Air Lines or generate 29.68% return on investment over 90 days.

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

Delta Air Lines  vs.  Baltic Panamax

Pair Trading with Delta Air and Baltic Panamax

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

The idea behind Delta Air Lines and Baltic Panamax 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.