Correlation Between Dell Technologies and United Airlines

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

By analyzing existing cross correlation between Dell Technologies and United Airlines Holdings, you can compare the effects of market volatilities on Dell Technologies and United 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 Dell Technologies with a short position of United Airlines. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dell Technologies and United Airlines.

Diversification Opportunities for Dell Technologies and United Airlines

0.69

Correlation Coefficient

Dell Technologies  United Airlines

Poor diversification

The 3 months correlation between Dell and United is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Dell Technologies and United Airlines Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on United Airlines Holdings and Dell Technologies 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 Dell Technologies are associated (or correlated) with United Airlines. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of United Airlines Holdings has no effect on the direction of Dell Technologies i.e., Dell Technologies and United Airlines go up and down completely randomly.

Pair Corralation between Dell Technologies and United Airlines

Assuming the 90 days trading horizon Dell Technologies is expected to generate 1.37 times more return on investment than United Airlines. However, Dell Technologies is 1.37 times more volatile than United Airlines Holdings. It trades about 0.09 of its potential returns per unit of risk. United Airlines Holdings is currently generating about 0.09 per unit of risk. If you would invest  21,025  in Dell Technologies on September 29, 2024 and sell it today you would earn a total of  52,537  from holding Dell Technologies or generate 249.88% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	97.38%
Values	Daily Returns

Dell Technologies  vs.  United Airlines Holdings

Dell Technologies

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Dell Technologies are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak technical and fundamental indicators, Dell Technologies sustained solid returns over the last few months and may actually be approaching a breakup point.

United Airlines Holdings

Risk-Adjusted Performance

28 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in United Airlines Holdings are ranked lower than 28 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, United Airlines sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Dell Technologies and United Airlines

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

The idea behind Dell Technologies and United Airlines Holdings 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.

Check out your portfolio center.

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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.