Correlation Between Heartland Express and Knight Transportation

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

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

Diversification Opportunities for Heartland Express and Knight Transportation

0.95

Correlation Coefficient

Heartland Express  Knight Transportation

Almost no diversification

The 3 months correlation between Heartland and Knight is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Heartland Express and Knight Transportation in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Knight Transportation and Heartland Express 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 Heartland Express 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 Heartland Express i.e., Heartland Express and Knight Transportation go up and down completely randomly.

Pair Corralation between Heartland Express and Knight Transportation

Given the investment horizon of 90 days Heartland Express is expected to under-perform the Knight Transportation. But the stock apears to be less risky and, when comparing its historical volatility, Heartland Express is 1.05 times less risky than Knight Transportation. The stock trades about -0.05 of its potential returns per unit of risk. The Knight Transportation is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  5,447  in Knight Transportation on January 3, 2025 and sell it today you would lose (1,071) from holding Knight Transportation or give up 19.66% of portfolio value over 90 days.

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

Heartland Express  vs.  Knight Transportation

Heartland Express

Risk-Adjusted Performance

Very Weak

Over the last 90 days Heartland Express has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's essential indicators remain rather sound which may send shares a bit higher in May 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Knight Transportation

Risk-Adjusted Performance

Very Weak

Over the last 90 days Knight Transportation has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of conflicting performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in May 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Heartland Express and Knight Transportation

The main advantage of trading using opposite Heartland Express and Knight Transportation positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Heartland Express 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 Heartland Express 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.