Correlation Between Direct Line and Universal Insurance
Can any of the company-specific risk be diversified away by investing in both Direct Line and Universal Insurance 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 Universal Insurance 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 Universal Insurance Holdings, you can compare the effects of market volatilities on Direct Line and Universal Insurance 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 Universal Insurance. Check out your portfolio center. Please also check ongoing floating volatility patterns of Direct Line and Universal Insurance.
Diversification Opportunities for Direct Line and Universal Insurance
-0.14 | Correlation Coefficient |
Good diversification
The 3 months correlation between Direct and Universal is -0.14. Overlapping area represents the amount of risk that can be diversified away by holding Direct Line Insurance and Universal Insurance Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Universal Insurance 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 Universal Insurance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Universal Insurance has no effect on the direction of Direct Line i.e., Direct Line and Universal Insurance go up and down completely randomly.
Pair Corralation between Direct Line and Universal Insurance
Assuming the 90 days trading horizon Direct Line Insurance is expected to generate 0.45 times more return on investment than Universal Insurance. However, Direct Line Insurance is 2.22 times less risky than Universal Insurance. It trades about 0.21 of its potential returns per unit of risk. Universal Insurance Holdings is currently generating about -0.19 per unit of risk. If you would invest 307.00 in Direct Line Insurance on November 3, 2024 and sell it today you would earn a total of 10.00 from holding Direct Line Insurance or generate 3.26% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 95.65% |
| Values | Daily Returns |
Direct Line Insurance vs. Universal Insurance Holdings
Performance |
| Timeline |
| Direct Line Insurance |
| Universal Insurance |
Direct Line and Universal Insurance Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Direct Line and Universal Insurance
The main advantage of trading using opposite Direct Line and Universal Insurance positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Direct Line position performs unexpectedly, Universal Insurance 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 Universal Insurance will offset losses from the drop in Universal Insurance's long position.| Direct Line vs. INSURANCE AUST GRP | Direct Line vs. CHRYSALIS INVESTMENTS LTD | Direct Line vs. HK Electric Investments | Direct Line vs. New China Life |
| Universal Insurance vs. TAL Education Group | Universal Insurance vs. STRAYER EDUCATION | Universal Insurance vs. NorAm Drilling AS | Universal Insurance vs. PULSION Medical Systems |
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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.
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