Correlation Between SkyWest and XPO Logistics

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

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

Diversification Opportunities for SkyWest and XPO Logistics

0.89

Correlation Coefficient

SkyWest  XPO Logistics

Very poor diversification

The 3 months correlation between SkyWest and XPO is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding SkyWest and XPO Logistics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on XPO Logistics and SkyWest 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 SkyWest are associated (or correlated) with XPO Logistics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of XPO Logistics has no effect on the direction of SkyWest i.e., SkyWest and XPO Logistics go up and down completely randomly.

Pair Corralation between SkyWest and XPO Logistics

Given the investment horizon of 90 days SkyWest is expected to generate 1.06 times more return on investment than XPO Logistics. However, SkyWest is 1.06 times more volatile than XPO Logistics. It trades about -0.07 of its potential returns per unit of risk. XPO Logistics is currently generating about -0.13 per unit of risk. If you would invest  10,373  in SkyWest on January 3, 2025 and sell it today you would lose (1,290) from holding SkyWest or give up 12.44% of portfolio value over 90 days.

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

SkyWest  vs.  XPO Logistics

SkyWest

Risk-Adjusted Performance

Very Weak

Over the last 90 days SkyWest has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's basic indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the venture sophisticated investors.

XPO Logistics

Risk-Adjusted Performance

Very Weak

Over the last 90 days XPO Logistics has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in May 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with SkyWest and XPO Logistics

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

The idea behind SkyWest and XPO Logistics 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.