Correlation Between Direct Line and Mueller Industries
Can any of the company-specific risk be diversified away by investing in both Direct Line and Mueller Industries 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 Mueller Industries 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 Mueller Industries, you can compare the effects of market volatilities on Direct Line and Mueller Industries 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 Mueller Industries. Check out your portfolio center. Please also check ongoing floating volatility patterns of Direct Line and Mueller Industries.
Diversification Opportunities for Direct Line and Mueller Industries
-0.13 | Correlation Coefficient |
Good diversification
The 3 months correlation between Direct and Mueller is -0.13. Overlapping area represents the amount of risk that can be diversified away by holding Direct Line Insurance and Mueller Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mueller Industries 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 Mueller Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mueller Industries has no effect on the direction of Direct Line i.e., Direct Line and Mueller Industries go up and down completely randomly.
Pair Corralation between Direct Line and Mueller Industries
Assuming the 90 days trading horizon Direct Line Insurance is expected to generate 1.05 times more return on investment than Mueller Industries. However, Direct Line is 1.05 times more volatile than Mueller Industries. It trades about 0.15 of its potential returns per unit of risk. Mueller Industries is currently generating about 0.08 per unit of risk. If you would invest 215.00 in Direct Line Insurance on October 14, 2024 and sell it today you would earn a total of 90.00 from holding Direct Line Insurance or generate 41.86% 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. Mueller Industries
Performance |
| Timeline |
| Direct Line Insurance |
| Mueller Industries |
Direct Line and Mueller Industries Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Direct Line and Mueller Industries
The main advantage of trading using opposite Direct Line and Mueller Industries positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Direct Line position performs unexpectedly, Mueller Industries 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 Mueller Industries will offset losses from the drop in Mueller Industries' long position.| Direct Line vs. Astral Foods Limited | Direct Line vs. GWILLI FOOD | Direct Line vs. SALESFORCE INC CDR | Direct Line vs. Tradegate AG Wertpapierhandelsbank |
| Mueller Industries vs. BANKINTER ADR 2007 | Mueller Industries vs. CHRYSALIS INVESTMENTS LTD | Mueller Industries vs. Keck Seng Investments | Mueller Industries 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.
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