Correlation Between Covenant Logistics and Old Dominion

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

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

Diversification Opportunities for Covenant Logistics and Old Dominion

0.8

Correlation Coefficient

Covenant Logistics  Old Dominion

Very poor diversification

The 3 months correlation between Covenant and Old is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Covenant Logistics Group and Old Dominion Freight in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Old Dominion Freight and Covenant 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 Covenant Logistics Group are associated (or correlated) with Old Dominion. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Old Dominion Freight has no effect on the direction of Covenant Logistics i.e., Covenant Logistics and Old Dominion go up and down completely randomly.

Pair Corralation between Covenant Logistics and Old Dominion

Assuming the 90 days horizon Covenant Logistics Group is expected to generate 0.85 times more return on investment than Old Dominion. However, Covenant Logistics Group is 1.17 times less risky than Old Dominion. It trades about -0.12 of its potential returns per unit of risk. Old Dominion Freight is currently generating about -0.65 per unit of risk. If you would invest  5,489  in Covenant Logistics Group on September 29, 2024 and sell it today you would lose (189.00) from holding Covenant Logistics Group or give up 3.44% of portfolio value over 90 days.

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

Covenant Logistics Group  vs.  Old Dominion Freight

Covenant Logistics

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Covenant Logistics Group are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Covenant Logistics reported solid returns over the last few months and may actually be approaching a breakup point.

Old Dominion Freight

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Old Dominion Freight has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Old Dominion is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Covenant Logistics and Old Dominion

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

The idea behind Covenant Logistics Group and Old Dominion Freight 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.