Correlation Between SkyWest and XPO Logistics

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

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

Diversification Opportunities for SkyWest and XPO Logistics

0.92

Correlation Coefficient

SkyWest  XPO Logistics

Almost no diversification

The 3 months correlation between SkyWest and XPO is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding SkyWest and XPO Logistics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on XPO Logistics and SkyWest 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 SkyWest are associated (or correlated) with XPO Logistics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of XPO Logistics has no effect on the direction of SkyWest i.e., SkyWest and XPO Logistics go up and down completely randomly.

Pair Corralation between SkyWest and XPO Logistics

Given the investment horizon of 90 days SkyWest is expected to generate 1.09 times less return on investment than XPO Logistics. But when comparing it to its historical volatility, SkyWest is 1.19 times less risky than XPO Logistics. It trades about 0.09 of its potential returns per unit of risk. XPO Logistics is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  10,539  in XPO Logistics on September 22, 2024 and sell it today you would earn a total of  2,986  from holding XPO Logistics or generate 28.33% return on investment over 90 days.

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

SkyWest  vs.  XPO Logistics

SkyWest

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in SkyWest are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, SkyWest showed solid returns over the last few months and may actually be approaching a breakup point.

XPO Logistics

Risk-Adjusted Performance

8 of 100

OK

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

Pair Trading with SkyWest and XPO Logistics

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

The idea behind SkyWest and XPO Logistics 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.