Correlation Between Knight Transportation and Covenant Logistics

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

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

Diversification Opportunities for Knight Transportation and Covenant Logistics

0.82

Correlation Coefficient

Knight Transportation  Covenant Logistics

Very poor diversification

The 3 months correlation between Knight and Covenant is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Knight Transportation and Covenant Logistics Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Covenant Logistics and Knight Transportation 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 Knight Transportation are associated (or correlated) with Covenant Logistics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Covenant Logistics has no effect on the direction of Knight Transportation i.e., Knight Transportation and Covenant Logistics go up and down completely randomly.

Pair Corralation between Knight Transportation and Covenant Logistics

Considering the 90-day investment horizon Knight Transportation is expected to generate 9.37 times less return on investment than Covenant Logistics. But when comparing it to its historical volatility, Knight Transportation is 1.42 times less risky than Covenant Logistics. It trades about 0.01 of its potential returns per unit of risk. Covenant Logistics Group is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  2,186  in Covenant Logistics Group on January 26, 2024 and sell it today you would earn a total of  2,230  from holding Covenant Logistics Group or generate 102.01% return on investment over 90 days.

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

Knight Transportation  vs.  Covenant Logistics Group

Knight Transportation

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Knight Transportation has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of inconsistent performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in May 2024. The current disturbance may also be a sign of long term up-swing for the company investors.

Covenant Logistics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Covenant Logistics Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest inconsistent performance, the Stock's essential indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Knight Transportation and Covenant Logistics

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

The idea behind Knight Transportation and Covenant Logistics Group 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.