Correlation Between Direct Line and SBA Communications
Can any of the company-specific risk be diversified away by investing in both Direct Line and SBA Communications 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 SBA Communications 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 SBA Communications Corp, you can compare the effects of market volatilities on Direct Line and SBA Communications 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 SBA Communications. Check out your portfolio center. Please also check ongoing floating volatility patterns of Direct Line and SBA Communications.
Diversification Opportunities for Direct Line and SBA Communications
0.22 | Correlation Coefficient |
Modest diversification
The 3 months correlation between Direct and SBA is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding Direct Line Insurance and SBA Communications Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SBA Communications Corp 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 SBA Communications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SBA Communications Corp has no effect on the direction of Direct Line i.e., Direct Line and SBA Communications go up and down completely randomly.
Pair Corralation between Direct Line and SBA Communications
Assuming the 90 days trading horizon Direct Line Insurance is expected to generate 3.69 times more return on investment than SBA Communications. However, Direct Line is 3.69 times more volatile than SBA Communications Corp. It trades about 0.25 of its potential returns per unit of risk. SBA Communications Corp is currently generating about 0.08 per unit of risk. If you would invest 205.00 in Direct Line Insurance on September 1, 2024 and sell it today you would earn a total of 75.00 from holding Direct Line Insurance or generate 36.59% 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. SBA Communications Corp
Performance |
| Timeline |
| Direct Line Insurance |
| SBA Communications Corp |
Direct Line and SBA Communications Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Direct Line and SBA Communications
The main advantage of trading using opposite Direct Line and SBA Communications positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Direct Line position performs unexpectedly, SBA Communications 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 SBA Communications will offset losses from the drop in SBA Communications' long position.| Direct Line vs. NN Group NV | Direct Line vs. Superior Plus Corp | Direct Line vs. Origin Agritech | Direct Line vs. Identiv |
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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..
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