Correlation Between Old Dominion and Covenant Logistics

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

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

Diversification Opportunities for Old Dominion and Covenant Logistics

0.8

Correlation Coefficient

Old Dominion  Covenant Logistics

Very poor diversification

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

Pair Corralation between Old Dominion and Covenant Logistics

Assuming the 90 days horizon Old Dominion Freight is expected to under-perform the Covenant Logistics. In addition to that, Old Dominion is 1.24 times more volatile than Covenant Logistics Group. It trades about -0.01 of its total potential returns per unit of risk. Covenant Logistics Group is currently generating about 0.09 per unit of volatility. If you would invest  4,710  in Covenant Logistics Group on September 28, 2024 and sell it today you would earn a total of  490.00  from holding Covenant Logistics Group or generate 10.4% return on investment over 90 days.

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

Old Dominion Freight  vs.  Covenant Logistics Group

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.

Covenant Logistics

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 fragile basic indicators, Covenant Logistics may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Old Dominion and Covenant Logistics

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

The idea behind Old Dominion Freight and Covenant Logistics Group 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.