Correlation Between Union Pacific and XPO Logistics

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

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

Diversification Opportunities for Union Pacific and XPO Logistics

-0.35

Correlation Coefficient

Union Pacific  XPO Logistics

Very good diversification

The 3 months correlation between Union and XPO is -0.35. Overlapping area represents the amount of risk that can be diversified away by holding Union Pacific and XPO Logistics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on XPO Logistics and Union Pacific 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 Union Pacific 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 Union Pacific i.e., Union Pacific and XPO Logistics go up and down completely randomly.

Pair Corralation between Union Pacific and XPO Logistics

Considering the 90-day investment horizon Union Pacific is expected to under-perform the XPO Logistics. But the stock apears to be less risky and, when comparing its historical volatility, Union Pacific is 1.73 times less risky than XPO Logistics. The stock trades about -0.05 of its potential returns per unit of risk. The XPO Logistics is currently generating about 0.25 of returns per unit of risk over similar time horizon. If you would invest  10,734  in XPO Logistics on September 12, 2024 and sell it today you would earn a total of  5,079  from holding XPO Logistics or generate 47.32% return on investment over 90 days.

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

Union Pacific  vs.  XPO Logistics

Union Pacific

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Union Pacific has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, Union Pacific is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

XPO Logistics

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in XPO Logistics are ranked lower than 19 (%) 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 Union Pacific and XPO Logistics

The main advantage of trading using opposite Union Pacific and XPO Logistics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Union Pacific 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 Union Pacific 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.