Correlation Between Covenant Logistics and Universal Logistics

Can any of the company-specific risk be diversified away by investing in both Covenant Logistics and Universal 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 Covenant Logistics and Universal Logistics 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 Universal Logistics Holdings, you can compare the effects of market volatilities on Covenant Logistics and Universal 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 Covenant Logistics with a short position of Universal Logistics. Check out your portfolio center. Please also check ongoing floating volatility patterns of Covenant Logistics and Universal Logistics.

Diversification Opportunities for Covenant Logistics and Universal Logistics

0.89

Correlation Coefficient

Covenant Logistics  Universal Logistics

Very poor diversification

The 3 months correlation between Covenant and Universal is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Covenant Logistics Group, and Universal Logistics Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Universal Logistics 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 Universal Logistics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Universal Logistics has no effect on the direction of Covenant Logistics i.e., Covenant Logistics and Universal Logistics go up and down completely randomly.

Pair Corralation between Covenant Logistics and Universal Logistics

Given the investment horizon of 90 days Covenant Logistics is expected to generate 2.22 times less return on investment than Universal Logistics. But when comparing it to its historical volatility, Covenant Logistics Group, is 1.55 times less risky than Universal Logistics. It trades about 0.08 of its potential returns per unit of risk. Universal Logistics Holdings is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  4,178  in Universal Logistics Holdings on August 31, 2024 and sell it today you would earn a total of  945.00  from holding Universal Logistics Holdings or generate 22.62% return on investment over 90 days.

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

Covenant Logistics Group,  vs.  Universal Logistics Holdings

Covenant Logistics Group,

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Covenant Logistics Group, are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain essential indicators, Covenant Logistics may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Universal Logistics

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Universal Logistics Holdings are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite fairly inconsistent essential indicators, Universal Logistics demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Covenant Logistics and Universal Logistics

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

The idea behind Covenant Logistics Group, and Universal Logistics Holdings 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.