Correlation Between Mesa Air and Knight Transportation

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

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

Diversification Opportunities for Mesa Air and Knight Transportation

-0.56

Correlation Coefficient

Mesa Air  Knight Transportation

Excellent diversification

The 3 months correlation between Mesa and Knight is -0.56. Overlapping area represents the amount of risk that can be diversified away by holding Mesa Air Group and Knight Transportation in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Knight Transportation and Mesa Air 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 Mesa Air Group 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 Mesa Air i.e., Mesa Air and Knight Transportation go up and down completely randomly.

Pair Corralation between Mesa Air and Knight Transportation

Given the investment horizon of 90 days Mesa Air Group is expected to under-perform the Knight Transportation. In addition to that, Mesa Air is 2.27 times more volatile than Knight Transportation. It trades about -0.01 of its total potential returns per unit of risk. Knight Transportation is currently generating about 0.11 per unit of volatility. If you would invest  5,228  in Knight Transportation on August 31, 2024 and sell it today you would earn a total of  681.00  from holding Knight Transportation or generate 13.03% return on investment over 90 days.

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

Mesa Air Group  vs.  Knight Transportation

Mesa Air Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Mesa Air Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Mesa Air is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

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 Mesa Air and Knight Transportation

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

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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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .