Correlation Between Delta Air and Discover Financial
Can any of the company-specific risk be diversified away by investing in both Delta Air and Discover Financial 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 Discover Financial 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 Discover Financial Services, you can compare the effects of market volatilities on Delta Air and Discover Financial 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 Discover Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Delta Air and Discover Financial.
Diversification Opportunities for Delta Air and Discover Financial
0.63 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Delta and Discover is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Delta Air Lines and Discover Financial Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Discover Financial 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 Discover Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Discover Financial has no effect on the direction of Delta Air i.e., Delta Air and Discover Financial go up and down completely randomly.
Pair Corralation between Delta Air and Discover Financial
Assuming the 90 days trading horizon Delta Air is expected to generate 1.25 times less return on investment than Discover Financial. But when comparing it to its historical volatility, Delta Air Lines is 1.1 times less risky than Discover Financial. It trades about 0.13 of its potential returns per unit of risk. Discover Financial Services is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest 32,642 in Discover Financial Services on October 25, 2024 and sell it today you would earn a total of 24,793 from holding Discover Financial Services or generate 75.95% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 99.39% |
| Values | Daily Returns |
Delta Air Lines vs. Discover Financial Services
Performance |
| Timeline |
| Delta Air Lines |
| Discover Financial |
Delta Air and Discover Financial Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Delta Air and Discover Financial
The main advantage of trading using opposite Delta Air and Discover Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Delta Air position performs unexpectedly, Discover Financial 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 Discover Financial will offset losses from the drop in Discover Financial's long position.| Delta Air vs. Align Technology | Delta Air vs. Sumitomo Mitsui Financial | Delta Air vs. The Hartford Financial | Delta Air vs. Iron Mountain Incorporated |
| Discover Financial vs. Align Technology | Discover Financial vs. Martin Marietta Materials, | Discover Financial vs. Delta Air Lines | Discover Financial vs. Palantir Technologies |
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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..
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