Correlation Between Covenant Logistics and FirstGroup Plc

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

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

Diversification Opportunities for Covenant Logistics and FirstGroup Plc

0.4

Correlation Coefficient

Covenant Logistics  FirstGroup Plc

Very weak diversification

The 3 months correlation between Covenant and FirstGroup is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding Covenant Logistics Group and FirstGroup plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FirstGroup plc and Covenant 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 Covenant Logistics Group are associated (or correlated) with FirstGroup Plc. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FirstGroup plc has no effect on the direction of Covenant Logistics i.e., Covenant Logistics and FirstGroup Plc go up and down completely randomly.

Pair Corralation between Covenant Logistics and FirstGroup Plc

Assuming the 90 days horizon Covenant Logistics Group is expected to generate 0.99 times more return on investment than FirstGroup Plc. However, Covenant Logistics Group is 1.01 times less risky than FirstGroup Plc. It trades about 0.08 of its potential returns per unit of risk. FirstGroup plc is currently generating about 0.02 per unit of risk. If you would invest  1,848  in Covenant Logistics Group on October 8, 2024 and sell it today you would earn a total of  752.00  from holding Covenant Logistics Group or generate 40.69% return on investment over 90 days.

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

Covenant Logistics Group  vs.  FirstGroup plc

Covenant Logistics

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Covenant Logistics Group are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Covenant Logistics reported solid returns over the last few months and may actually be approaching a breakup point.

FirstGroup plc

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in FirstGroup plc are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, FirstGroup Plc reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Covenant Logistics and FirstGroup Plc

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

The idea behind Covenant Logistics Group and FirstGroup plc 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.