Correlation Between Direct Line and Amazon
Can any of the company-specific risk be diversified away by investing in both Direct Line and Amazon 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 Amazon 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 Amazon Inc, you can compare the effects of market volatilities on Direct Line and Amazon 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 Amazon. Check out your portfolio center. Please also check ongoing floating volatility patterns of Direct Line and Amazon.
Diversification Opportunities for Direct Line and Amazon
-0.35 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Direct and Amazon is -0.35. Overlapping area represents the amount of risk that can be diversified away by holding Direct Line Insurance and Amazon Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Amazon Inc 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 Amazon. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Amazon Inc has no effect on the direction of Direct Line i.e., Direct Line and Amazon go up and down completely randomly.
Pair Corralation between Direct Line and Amazon
Assuming the 90 days trading horizon Direct Line Insurance is expected to generate 3.13 times more return on investment than Amazon. However, Direct Line is 3.13 times more volatile than Amazon Inc. It trades about 0.3 of its potential returns per unit of risk. Amazon Inc is currently generating about 0.16 per unit of risk. If you would invest 192.00 in Direct Line Insurance on September 2, 2024 and sell it today you would earn a total of 88.00 from holding Direct Line Insurance or generate 45.83% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Direct Line Insurance vs. Amazon Inc
Performance |
| Timeline |
| Direct Line Insurance |
| Amazon Inc |
Direct Line and Amazon Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Direct Line and Amazon
The main advantage of trading using opposite Direct Line and Amazon positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Direct Line position performs unexpectedly, Amazon 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 Amazon will offset losses from the drop in Amazon's long position.| Direct Line vs. Enter Air SA | Direct Line vs. PLAYSTUDIOS A DL 0001 | Direct Line vs. Insteel Industries | Direct Line vs. Mitsui Chemicals |
| Amazon vs. Richardson Electronics | Amazon vs. Mobilezone Holding AG | Amazon vs. METHODE ELECTRONICS | Amazon vs. Arrow Electronics |
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 Financial Widgets module to easily integrated Macroaxis content with over 30 different plug-and-play financial widgets.
Other Complementary Tools
| Idea Breakdown Analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes | |
| Price Ceiling Movement Calculate and plot Price Ceiling Movement for different equity instruments | |
| Price Transformation Use Price Transformation models to analyze the depth of different equity instruments across global markets | |
| Stocks Directory Find actively traded stocks across global markets | |
| Bonds Directory Find actively traded corporate debentures issued by US companies |