Correlation Between Direct Line and Air China
Can any of the company-specific risk be diversified away by investing in both Direct Line and Air China 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 Air China 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 Air China Limited, you can compare the effects of market volatilities on Direct Line and Air China 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 Air China. Check out your portfolio center. Please also check ongoing floating volatility patterns of Direct Line and Air China.
Diversification Opportunities for Direct Line and Air China
0.71 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Direct and Air is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Direct Line Insurance and Air China Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Air China Limited 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 Air China. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Air China Limited has no effect on the direction of Direct Line i.e., Direct Line and Air China go up and down completely randomly.
Pair Corralation between Direct Line and Air China
Assuming the 90 days trading horizon Direct Line Insurance is expected to generate 0.26 times more return on investment than Air China. However, Direct Line Insurance is 3.89 times less risky than Air China. It trades about 0.11 of its potential returns per unit of risk. Air China Limited is currently generating about -0.14 per unit of risk. If you would invest 310.00 in Direct Line Insurance on October 26, 2024 and sell it today you would earn a total of 5.00 from holding Direct Line Insurance or generate 1.61% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Direct Line Insurance vs. Air China Limited
Performance |
| Timeline |
| Direct Line Insurance |
| Air China Limited |
Direct Line and Air China Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Direct Line and Air China
The main advantage of trading using opposite Direct Line and Air China positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Direct Line position performs unexpectedly, Air China 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 Air China will offset losses from the drop in Air China's long position.| Direct Line vs. REINET INVESTMENTS SCA | Direct Line vs. PENN NATL GAMING | Direct Line vs. URBAN OUTFITTERS | Direct Line vs. MOVIE GAMES SA |
| Air China vs. ADRIATIC METALS LS 013355 | Air China vs. Synchrony Financial | Air China vs. PRECISION DRILLING P | Air China vs. Direct Line Insurance |
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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.
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