Correlation Between Delta Air and Philip Morris

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

Diversification Opportunities for Delta Air and Philip Morris

0.63

Correlation Coefficient

Delta Air  Philip Morris

Poor diversification

The 3 months correlation between Delta and Philip is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Delta Air Lines and Philip Morris International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Philip Morris Intern 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 Philip Morris. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Philip Morris Intern has no effect on the direction of Delta Air i.e., Delta Air and Philip Morris go up and down completely randomly.

Pair Corralation between Delta Air and Philip Morris

Considering the 90-day investment horizon Delta Air Lines is expected to generate 1.87 times more return on investment than Philip Morris. However, Delta Air is 1.87 times more volatile than Philip Morris International. It trades about -0.1 of its potential returns per unit of risk. Philip Morris International is currently generating about -0.4 per unit of risk. If you would invest  6,382  in Delta Air Lines on September 29, 2024 and sell it today you would lose (256.00) from holding Delta Air Lines or give up 4.01% of portfolio value over 90 days.

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

Delta Air Lines  vs.  Philip Morris International

Delta Air Lines

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Delta Air Lines are ranked lower than 11 (%) 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.

Philip Morris Intern

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Philip Morris International are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy primary indicators, Philip Morris is not utilizing all of its potentials. The newest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Delta Air and Philip Morris

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

The idea behind Delta Air Lines and Philip Morris International 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.