Correlation Between Delta Air and InterContinental

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

Diversification Opportunities for Delta Air and InterContinental

0.9

Correlation Coefficient

Delta Air  InterContinental

Almost no diversification

The 3 months correlation between Delta and InterContinental is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Delta Air Lines and InterContinental Hotels Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on InterContinental Hotels 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 InterContinental. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of InterContinental Hotels has no effect on the direction of Delta Air i.e., Delta Air and InterContinental go up and down completely randomly.

Pair Corralation between Delta Air and InterContinental

Assuming the 90 days trading horizon Delta Air Lines is expected to generate 1.72 times more return on investment than InterContinental. However, Delta Air is 1.72 times more volatile than InterContinental Hotels Group. It trades about 0.09 of its potential returns per unit of risk. InterContinental Hotels Group is currently generating about 0.13 per unit of risk. If you would invest  4,010  in Delta Air Lines on September 24, 2024 and sell it today you would earn a total of  2,049  from holding Delta Air Lines or generate 51.1% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	99.6%
Values	Daily Returns

Delta Air Lines  vs.  InterContinental Hotels Group

Delta Air Lines

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Delta Air Lines are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Delta Air unveiled solid returns over the last few months and may actually be approaching a breakup point.

InterContinental Hotels

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in InterContinental Hotels Group are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, InterContinental exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Delta Air and InterContinental

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

The idea behind Delta Air Lines and InterContinental Hotels 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.