Correlation Between Delta Air and Knight Transportation

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

Diversification Opportunities for Delta Air and Knight Transportation

0.79

Correlation Coefficient

Delta Air  Knight Transportation

Poor diversification

The 3 months correlation between Delta and Knight is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Delta Air Lines and Knight Transportation in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Knight Transportation and Delta 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 Delta Air Lines 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 Delta Air i.e., Delta Air and Knight Transportation go up and down completely randomly.

Pair Corralation between Delta Air and Knight Transportation

Considering the 90-day investment horizon Delta Air Lines is expected to generate 1.14 times more return on investment than Knight Transportation. However, Delta Air is 1.14 times more volatile than Knight Transportation. It trades about 0.31 of its potential returns per unit of risk. Knight Transportation is currently generating about 0.11 per unit of risk. If you would invest  4,225  in Delta Air Lines on August 31, 2024 and sell it today you would earn a total of  2,137  from holding Delta Air Lines or generate 50.58% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.44%
Values	Daily Returns

Delta Air Lines  vs.  Knight Transportation

Delta Air Lines

Risk-Adjusted Performance

24 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Delta Air Lines are ranked lower than 24 (%) of all global equities and portfolios over the last 90 days. Despite quite uncertain basic indicators, Delta Air disclosed solid returns over the last few months and may actually be approaching a breakup point.

Knight Transportation

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Knight Transportation are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating basic indicators, Knight Transportation showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Delta Air and Knight Transportation

The main advantage of trading using opposite Delta Air and Knight Transportation positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Delta 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 Delta Air Lines 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 Transaction History module to view history of all your transactions and understand their impact on performance.