Correlation Between NYSE Composite and Knight Transportation

Can any of the company-specific risk be diversified away by investing in both NYSE Composite 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 NYSE Composite and Knight Transportation into the same portfolio, which is an essential part of the fundamental portfolio management process.

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

Diversification Opportunities for NYSE Composite and Knight Transportation

0.72

Correlation Coefficient

NYSE Composite  Knight Transportation

Poor diversification

The 3 months correlation between NYSE and Knight is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding NYSE Composite and Knight Transportation in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Knight Transportation and NYSE Composite 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 NYSE Composite 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 NYSE Composite i.e., NYSE Composite and Knight Transportation go up and down completely randomly.

Pair Corralation between NYSE Composite and Knight Transportation

Assuming the 90 days trading horizon NYSE Composite is expected to generate 2.2 times less return on investment than Knight Transportation. But when comparing it to its historical volatility, NYSE Composite is 3.25 times less risky than Knight Transportation. It trades about 0.17 of its potential returns per unit of risk. Knight Transportation is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  5,228  in Knight Transportation on August 31, 2024 and sell it today you would earn a total of  708.00  from holding Knight Transportation or generate 13.54% return on investment over 90 days.

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

NYSE Composite  vs.  Knight Transportation

Pair Trading with NYSE Composite and Knight Transportation

The main advantage of trading using opposite NYSE Composite and Knight Transportation positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NYSE Composite 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 NYSE Composite 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.