Correlation Between Direct Line and WPP PLC
Can any of the company-specific risk be diversified away by investing in both Direct Line and WPP PLC 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 Direct Line and WPP PLC into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Direct Line Insurance and WPP PLC, you can compare the effects of market volatilities on Direct Line and WPP PLC 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 Direct Line with a short position of WPP PLC. Check out your portfolio center. Please also check ongoing floating volatility patterns of Direct Line and WPP PLC.
Diversification Opportunities for Direct Line and WPP PLC
0.32 | Correlation Coefficient |
Weak diversification
The 3 months correlation between Direct and WPP is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding Direct Line Insurance and WPP PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WPP PLC and Direct Line 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 Direct Line Insurance are associated (or correlated) with WPP PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WPP PLC has no effect on the direction of Direct Line i.e., Direct Line and WPP PLC go up and down completely randomly.
Pair Corralation between Direct Line and WPP PLC
Assuming the 90 days trading horizon Direct Line Insurance is expected to generate 2.04 times more return on investment than WPP PLC. However, Direct Line is 2.04 times more volatile than WPP PLC. It trades about 0.07 of its potential returns per unit of risk. WPP PLC is currently generating about 0.03 per unit of risk. If you would invest 164.00 in Direct Line Insurance on September 12, 2024 and sell it today you would earn a total of 138.00 from holding Direct Line Insurance or generate 84.15% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Direct Line Insurance vs. WPP PLC
Performance |
| Timeline |
| Direct Line Insurance |
| WPP PLC |
Direct Line and WPP PLC Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Direct Line and WPP PLC
The main advantage of trading using opposite Direct Line and WPP PLC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Direct Line position performs unexpectedly, WPP PLC 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 WPP PLC will offset losses from the drop in WPP PLC's long position.| 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 |
| WPP PLC vs. Superior Plus Corp | WPP PLC vs. SIVERS SEMICONDUCTORS AB | WPP PLC vs. NorAm Drilling AS | WPP PLC vs. Norsk Hydro ASA |
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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.
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