Correlation Between Direct Line and NiSource
Can any of the company-specific risk be diversified away by investing in both Direct Line and NiSource 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 NiSource 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 NiSource, you can compare the effects of market volatilities on Direct Line and NiSource 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 NiSource. Check out your portfolio center. Please also check ongoing floating volatility patterns of Direct Line and NiSource.
Diversification Opportunities for Direct Line and NiSource
-0.24 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Direct and NiSource is -0.24. Overlapping area represents the amount of risk that can be diversified away by holding Direct Line Insurance and NiSource in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NiSource 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 NiSource. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NiSource has no effect on the direction of Direct Line i.e., Direct Line and NiSource go up and down completely randomly.
Pair Corralation between Direct Line and NiSource
Assuming the 90 days trading horizon Direct Line Insurance is expected to generate 2.92 times more return on investment than NiSource. However, Direct Line is 2.92 times more volatile than NiSource. It trades about 0.03 of its potential returns per unit of risk. NiSource is currently generating about 0.07 per unit of risk. If you would invest 233.00 in Direct Line Insurance on September 3, 2024 and sell it today you would earn a total of 47.00 from holding Direct Line Insurance or generate 20.17% 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. NiSource
Performance |
| Timeline |
| Direct Line Insurance |
| NiSource |
Direct Line and NiSource Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Direct Line and NiSource
The main advantage of trading using opposite Direct Line and NiSource positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Direct Line position performs unexpectedly, NiSource 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 NiSource will offset losses from the drop in NiSource's long position.| Direct Line vs. Allianz SE | Direct Line vs. Superior Plus Corp | Direct Line vs. NMI Holdings | Direct Line vs. Origin Agritech |
| NiSource vs. Diamyd Medical AB | NiSource vs. Direct Line Insurance | NiSource vs. Universal Insurance Holdings | NiSource vs. QBE Insurance Group |
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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.
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