Correlation Between Universal Logistics and Knight Transportation

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

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

Diversification Opportunities for Universal Logistics and Knight Transportation

0.85

Correlation Coefficient

Universal Logistics  Knight Transportation

Very poor diversification

The 3 months correlation between Universal and Knight is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Universal Logistics Holdings and Knight Transportation in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Knight Transportation and Universal 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 Universal Logistics Holdings 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 Universal Logistics i.e., Universal Logistics and Knight Transportation go up and down completely randomly.

Pair Corralation between Universal Logistics and Knight Transportation

Considering the 90-day investment horizon Universal Logistics Holdings is expected to generate 1.64 times more return on investment than Knight Transportation. However, Universal Logistics is 1.64 times more volatile than Knight Transportation. It trades about 0.13 of its potential returns per unit of risk. Knight Transportation is currently generating about 0.11 per unit of risk. If you would invest  4,178  in Universal Logistics Holdings on September 2, 2024 and sell it today you would earn a total of  1,033  from holding Universal Logistics Holdings or generate 24.72% return on investment over 90 days.

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

Universal Logistics Holdings  vs.  Knight Transportation

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.

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 Universal Logistics and Knight Transportation

The main advantage of trading using opposite Universal Logistics and Knight Transportation positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Universal Logistics 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 Universal Logistics Holdings 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.

Check out your portfolio center.

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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.