Correlation Between Delta Air and NVIDIA

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

Diversification Opportunities for Delta Air and NVIDIA

0.85

Correlation Coefficient

Delta Air  NVIDIA

Very poor diversification

The 3 months correlation between Delta and NVIDIA is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Delta Air Lines and NVIDIA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NVIDIA 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 NVIDIA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NVIDIA has no effect on the direction of Delta Air i.e., Delta Air and NVIDIA go up and down completely randomly.

Pair Corralation between Delta Air and NVIDIA

Assuming the 90 days trading horizon Delta Air Lines is expected to generate 1.15 times more return on investment than NVIDIA. However, Delta Air is 1.15 times more volatile than NVIDIA. It trades about 0.19 of its potential returns per unit of risk. NVIDIA is currently generating about 0.12 per unit of risk. If you would invest  90,930  in Delta Air Lines on September 20, 2024 and sell it today you would earn a total of  31,370  from holding Delta Air Lines or generate 34.5% return on investment over 90 days.

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

Delta Air Lines  vs.  NVIDIA

Delta Air Lines

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Delta Air Lines are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak essential indicators, Delta Air showed solid returns over the last few months and may actually be approaching a breakup point.

NVIDIA

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in NVIDIA are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, NVIDIA showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Delta Air and NVIDIA

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

The idea behind Delta Air Lines and NVIDIA 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.