Correlation Between Universal Insurance and Direct Line
Can any of the company-specific risk be diversified away by investing in both Universal Insurance and Direct Line 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 Universal Insurance and Direct Line into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Universal Insurance Holdings and Direct Line Insurance, you can compare the effects of market volatilities on Universal Insurance and Direct Line 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 Universal Insurance with a short position of Direct Line. Check out your portfolio center. Please also check ongoing floating volatility patterns of Universal Insurance and Direct Line.
Diversification Opportunities for Universal Insurance and Direct Line
0.26 | Correlation Coefficient |
Modest diversification
The 3 months correlation between Universal and Direct is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding Universal Insurance Holdings and Direct Line Insurance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Direct Line Insurance and Universal Insurance 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 Universal Insurance Holdings are associated (or correlated) with Direct Line. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Direct Line Insurance has no effect on the direction of Universal Insurance i.e., Universal Insurance and Direct Line go up and down completely randomly.
Pair Corralation between Universal Insurance and Direct Line
Assuming the 90 days horizon Universal Insurance is expected to generate 16.79 times less return on investment than Direct Line. But when comparing it to its historical volatility, Universal Insurance Holdings is 5.21 times less risky than Direct Line. It trades about 0.1 of its potential returns per unit of risk. Direct Line Insurance is currently generating about 0.34 of returns per unit of risk over similar time horizon. If you would invest 195.00 in Direct Line Insurance on September 12, 2024 and sell it today you would earn a total of 107.00 from holding Direct Line Insurance or generate 54.87% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Universal Insurance Holdings vs. Direct Line Insurance
Performance |
| Timeline |
| Universal Insurance |
| Direct Line Insurance |
Universal Insurance and Direct Line Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Universal Insurance and Direct Line
The main advantage of trading using opposite Universal Insurance and Direct Line positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Universal Insurance position performs unexpectedly, Direct Line 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 Direct Line will offset losses from the drop in Direct Line's long position.| Universal Insurance vs. QBE Insurance Group | Universal Insurance vs. Insurance Australia Group | Universal Insurance vs. Superior Plus Corp | Universal Insurance vs. SIVERS SEMICONDUCTORS AB |
| Direct Line vs. Superior Plus Corp | Direct Line vs. SIVERS SEMICONDUCTORS AB | Direct Line vs. CHINA HUARONG ENERHD 50 | Direct Line vs. NORDIC HALIBUT AS |
Check out your portfolio center.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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.
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