Correlation Between Air Transport and Direct Line
Can any of the company-specific risk be diversified away by investing in both Air Transport 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 Air Transport and Direct Line into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Air Transport Services and Direct Line Insurance, you can compare the effects of market volatilities on Air Transport 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 Air Transport with a short position of Direct Line. Check out your portfolio center. Please also check ongoing floating volatility patterns of Air Transport and Direct Line.
Diversification Opportunities for Air Transport and Direct Line
-0.7 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Air and Direct is -0.7. Overlapping area represents the amount of risk that can be diversified away by holding Air Transport Services 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 Air Transport 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 Air Transport Services 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 Air Transport i.e., Air Transport and Direct Line go up and down completely randomly.
Pair Corralation between Air Transport and Direct Line
Given the investment horizon of 90 days Air Transport Services is expected to generate 0.76 times more return on investment than Direct Line. However, Air Transport Services is 1.32 times less risky than Direct Line. It trades about 0.14 of its potential returns per unit of risk. Direct Line Insurance is currently generating about 0.04 per unit of risk. If you would invest 1,277 in Air Transport Services on September 3, 2024 and sell it today you would earn a total of 928.00 from holding Air Transport Services or generate 72.67% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Air Transport Services vs. Direct Line Insurance
Performance |
| Timeline |
| Air Transport Services |
| Direct Line Insurance |
Air Transport and Direct Line Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Air Transport and Direct Line
The main advantage of trading using opposite Air Transport and Direct Line positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Air Transport 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.| Air Transport vs. Copa Holdings SA | Air Transport vs. SkyWest | Air Transport vs. Sun Country Airlines | Air Transport vs. Frontier Group Holdings |
| Direct Line vs. Lipocine | Direct Line vs. Spyre Therapeutics | Direct Line vs. Atmos Energy | Direct Line vs. Regeneron Pharmaceuticals |
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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.
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