Correlation Between KLX Energy and Universal Logistics

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

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

Diversification Opportunities for KLX Energy and Universal Logistics

0.49

Correlation Coefficient

KLX Energy  Universal Logistics

Very weak diversification

The 3 months correlation between KLX and Universal is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding KLX Energy Services and Universal Logistics Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Universal Logistics and KLX Energy 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 KLX Energy Services 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 KLX Energy i.e., KLX Energy and Universal Logistics go up and down completely randomly.

Pair Corralation between KLX Energy and Universal Logistics

Given the investment horizon of 90 days KLX Energy Services is expected to under-perform the Universal Logistics. In addition to that, KLX Energy is 2.17 times more volatile than Universal Logistics Holdings. It trades about -0.31 of its total potential returns per unit of risk. Universal Logistics Holdings is currently generating about -0.03 per unit of volatility. If you would invest  4,858  in Universal Logistics Holdings on September 19, 2024 and sell it today you would lose (68.00) from holding Universal Logistics Holdings or give up 1.4% of portfolio value over 90 days.

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

KLX Energy Services  vs.  Universal Logistics Holdings

KLX Energy Services

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days KLX Energy Services has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of abnormal performance in the last few months, the Stock's basic indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Universal Logistics

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Universal Logistics Holdings are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite fairly inconsistent essential indicators, Universal Logistics may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with KLX Energy and Universal Logistics

The main advantage of trading using opposite KLX Energy and Universal Logistics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if KLX Energy 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 KLX Energy Services 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.