Correlation Between Covenant Logistics and PAM Transportation

Can any of the company-specific risk be diversified away by investing in both Covenant Logistics and PAM 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 Covenant Logistics and PAM Transportation 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 PAM Transportation Services, you can compare the effects of market volatilities on Covenant Logistics and PAM 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 Covenant Logistics with a short position of PAM Transportation. Check out your portfolio center. Please also check ongoing floating volatility patterns of Covenant Logistics and PAM Transportation.

Diversification Opportunities for Covenant Logistics and PAM Transportation

-0.21

Correlation Coefficient

Covenant Logistics  PAM Transportation

Very good diversification

The 3 months correlation between Covenant and PAM is -0.21. Overlapping area represents the amount of risk that can be diversified away by holding Covenant Logistics Group, and PAM Transportation Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PAM Transportation 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 PAM Transportation. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PAM Transportation has no effect on the direction of Covenant Logistics i.e., Covenant Logistics and PAM Transportation go up and down completely randomly.

Pair Corralation between Covenant Logistics and PAM Transportation

Given the investment horizon of 90 days Covenant Logistics is expected to generate 2.08 times less return on investment than PAM Transportation. But when comparing it to its historical volatility, Covenant Logistics Group, is 1.81 times less risky than PAM Transportation. It trades about 0.1 of its potential returns per unit of risk. PAM Transportation Services is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  1,814  in PAM Transportation Services on August 30, 2024 and sell it today you would earn a total of  366.00  from holding PAM Transportation Services or generate 20.18% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	84.13%
Values	Daily Returns

Covenant Logistics Group,  vs.  PAM Transportation Services

Covenant Logistics Group,

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Covenant Logistics Group, are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly unfluctuating essential indicators, Covenant Logistics may actually be approaching a critical reversion point that can send shares even higher in December 2024.

PAM Transportation

Risk-Adjusted Performance

0 of 100

OK

Over the last 90 days PAM Transportation Services has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly weak basic indicators, PAM Transportation demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Covenant Logistics and PAM Transportation

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

The idea behind Covenant Logistics Group, and PAM Transportation Services 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 Search module to search for actively traded equities including funds and ETFs from over 30 global markets.