Correlation Between GXO Logistics and United Parcel

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

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

Diversification Opportunities for GXO Logistics and United Parcel

-0.29

Correlation Coefficient

GXO Logistics  United Parcel

Very good diversification

The 3 months correlation between GXO and United is -0.29. Overlapping area represents the amount of risk that can be diversified away by holding GXO Logistics and United Parcel Service in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on United Parcel Service and GXO Logistics 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 GXO Logistics are associated (or correlated) with United Parcel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of United Parcel Service has no effect on the direction of GXO Logistics i.e., GXO Logistics and United Parcel go up and down completely randomly.

Pair Corralation between GXO Logistics and United Parcel

Considering the 90-day investment horizon GXO Logistics is expected to under-perform the United Parcel. In addition to that, GXO Logistics is 1.58 times more volatile than United Parcel Service. It trades about -0.06 of its total potential returns per unit of risk. United Parcel Service is currently generating about 0.0 per unit of volatility. If you would invest  14,762  in United Parcel Service on January 31, 2024 and sell it today you would lose (14.00) from holding United Parcel Service or give up 0.09% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.45%
Values	Daily Returns

GXO Logistics  vs.  United Parcel Service

GXO Logistics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days GXO Logistics has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, GXO Logistics is not utilizing all of its potentials. The newest stock price disarray, may contribute to short-term losses for the investors.

United Parcel Service

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in United Parcel Service are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, United Parcel is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with GXO Logistics and United Parcel

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

The idea behind GXO Logistics and United Parcel Service 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.