Correlation Between Azul SA and XPO Logistics

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

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

Diversification Opportunities for Azul SA and XPO Logistics

-0.39

Correlation Coefficient

Azul SA  XPO Logistics

Very good diversification

The 3 months correlation between Azul and XPO is -0.39. Overlapping area represents the amount of risk that can be diversified away by holding Azul SA and XPO Logistics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on XPO Logistics and Azul SA 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 Azul SA are associated (or correlated) with XPO Logistics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of XPO Logistics has no effect on the direction of Azul SA i.e., Azul SA and XPO Logistics go up and down completely randomly.

Pair Corralation between Azul SA and XPO Logistics

Given the investment horizon of 90 days Azul SA is expected to under-perform the XPO Logistics. In addition to that, Azul SA is 1.76 times more volatile than XPO Logistics. It trades about -0.05 of its total potential returns per unit of risk. XPO Logistics is currently generating about 0.15 per unit of volatility. If you would invest  10,947  in XPO Logistics on October 23, 2024 and sell it today you would earn a total of  2,868  from holding XPO Logistics or generate 26.2% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.36%
Values	Daily Returns

Azul SA  vs.  XPO Logistics

Azul SA

Risk-Adjusted Performance

0 of 100

Very Weak

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

XPO Logistics

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in XPO Logistics are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, XPO Logistics displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Azul SA and XPO Logistics

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

The idea behind Azul SA and XPO Logistics 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.