Correlation Between Direct Line and NEXTDC
Can any of the company-specific risk be diversified away by investing in both Direct Line and NEXTDC 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 NEXTDC 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 NEXTDC LTD, you can compare the effects of market volatilities on Direct Line and NEXTDC 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 NEXTDC. Check out your portfolio center. Please also check ongoing floating volatility patterns of Direct Line and NEXTDC.
Diversification Opportunities for Direct Line and NEXTDC
-0.68 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Direct and NEXTDC is -0.68. Overlapping area represents the amount of risk that can be diversified away by holding Direct Line Insurance and NEXTDC LTD in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NEXTDC LTD 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 NEXTDC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NEXTDC LTD has no effect on the direction of Direct Line i.e., Direct Line and NEXTDC go up and down completely randomly.
Pair Corralation between Direct Line and NEXTDC
Assuming the 90 days trading horizon Direct Line Insurance is expected to generate 0.78 times more return on investment than NEXTDC. However, Direct Line Insurance is 1.28 times less risky than NEXTDC. It trades about 0.14 of its potential returns per unit of risk. NEXTDC LTD is currently generating about -0.06 per unit of risk. If you would invest 299.00 in Direct Line Insurance on October 12, 2024 and sell it today you would earn a total of 11.00 from holding Direct Line Insurance or generate 3.68% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Direct Line Insurance vs. NEXTDC LTD
Performance |
| Timeline |
| Direct Line Insurance |
| NEXTDC LTD |
Direct Line and NEXTDC Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Direct Line and NEXTDC
The main advantage of trading using opposite Direct Line and NEXTDC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Direct Line position performs unexpectedly, NEXTDC 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 NEXTDC will offset losses from the drop in NEXTDC's long position.| Direct Line vs. Silicon Motion Technology | Direct Line vs. Sinopec Shanghai Petrochemical | Direct Line vs. Mitsui Chemicals | Direct Line vs. Diamyd Medical AB |
| NEXTDC vs. Virtu Financial | NEXTDC vs. Erste Group Bank | NEXTDC vs. Direct Line Insurance | NEXTDC vs. PTT Global Chemical |
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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.
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