Correlation Between Direct Line and FUJITSU
Can any of the company-specific risk be diversified away by investing in both Direct Line and FUJITSU 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 FUJITSU 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 FUJITSU LTD ADR, you can compare the effects of market volatilities on Direct Line and FUJITSU 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 FUJITSU. Check out your portfolio center. Please also check ongoing floating volatility patterns of Direct Line and FUJITSU.
Diversification Opportunities for Direct Line and FUJITSU
0.22 | Correlation Coefficient |
Modest diversification
The 3 months correlation between Direct and FUJITSU is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding Direct Line Insurance and FUJITSU LTD ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FUJITSU LTD ADR 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 FUJITSU. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FUJITSU LTD ADR has no effect on the direction of Direct Line i.e., Direct Line and FUJITSU go up and down completely randomly.
Pair Corralation between Direct Line and FUJITSU
Assuming the 90 days trading horizon Direct Line Insurance is expected to generate 2.14 times more return on investment than FUJITSU. However, Direct Line is 2.14 times more volatile than FUJITSU LTD ADR. It trades about 0.19 of its potential returns per unit of risk. FUJITSU LTD ADR is currently generating about -0.04 per unit of risk. If you would invest 204.00 in Direct Line Insurance on October 25, 2024 and sell it today you would earn a total of 110.00 from holding Direct Line Insurance or generate 53.92% 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. FUJITSU LTD ADR
Performance |
| Timeline |
| Direct Line Insurance |
| FUJITSU LTD ADR |
Direct Line and FUJITSU Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Direct Line and FUJITSU
The main advantage of trading using opposite Direct Line and FUJITSU positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Direct Line position performs unexpectedly, FUJITSU 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 FUJITSU will offset losses from the drop in FUJITSU's long position.| Direct Line vs. Allianz SE | Direct Line vs. ALLIANZ SE UNSPADR | Direct Line vs. AXA SA | Direct Line vs. Principal Financial Group |
| FUJITSU vs. Telecom Argentina SA | FUJITSU vs. Direct Line Insurance | FUJITSU vs. Cairo Communication SpA | FUJITSU vs. COMBA TELECOM SYST |
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 Global Correlations module to find global opportunities by holding instruments from different markets.
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