Correlation Between Alaska Air and Knight Transportation

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

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

Diversification Opportunities for Alaska Air and Knight Transportation

0.79

Correlation Coefficient

Alaska Air  Knight Transportation

Poor diversification

The 3 months correlation between Alaska and Knight is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Alaska Air Group and Knight Transportation in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Knight Transportation and Alaska 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 Alaska Air Group are associated (or correlated) with Knight Transportation. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Knight Transportation has no effect on the direction of Alaska Air i.e., Alaska Air and Knight Transportation go up and down completely randomly.

Pair Corralation between Alaska Air and Knight Transportation

Considering the 90-day investment horizon Alaska Air Group is expected to under-perform the Knight Transportation. In addition to that, Alaska Air is 1.53 times more volatile than Knight Transportation. It trades about -0.12 of its total potential returns per unit of risk. Knight Transportation is currently generating about -0.14 per unit of volatility. If you would invest  5,238  in Knight Transportation on December 28, 2024 and sell it today you would lose (781.00) from holding Knight Transportation or give up 14.91% of portfolio value over 90 days.

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

Alaska Air Group  vs.  Knight Transportation

Alaska Air Group

Risk-Adjusted Performance

Very Weak

Over the last 90 days Alaska Air Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite abnormal performance in the last few months, the Stock's essential indicators remain quite persistent which may send shares a bit higher in April 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Knight Transportation

Risk-Adjusted Performance

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 unfluctuating performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Alaska Air and Knight Transportation

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

The idea behind Alaska Air Group and Knight Transportation 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.