Correlation Between Direct Line and Insurance Australia
Can any of the company-specific risk be diversified away by investing in both Direct Line and Insurance Australia 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 Insurance Australia 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 Insurance Australia Group, you can compare the effects of market volatilities on Direct Line and Insurance Australia 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 Insurance Australia. Check out your portfolio center. Please also check ongoing floating volatility patterns of Direct Line and Insurance Australia.
Diversification Opportunities for Direct Line and Insurance Australia
0.76 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Direct and Insurance is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Direct Line Insurance and Insurance Australia Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Insurance Australia 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 Insurance Australia. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Insurance Australia has no effect on the direction of Direct Line i.e., Direct Line and Insurance Australia go up and down completely randomly.
Pair Corralation between Direct Line and Insurance Australia
Assuming the 90 days trading horizon Direct Line is expected to generate 1.57 times less return on investment than Insurance Australia. But when comparing it to its historical volatility, Direct Line Insurance is 2.03 times less risky than Insurance Australia. It trades about 0.2 of its potential returns per unit of risk. Insurance Australia Group is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest 500.00 in Insurance Australia Group on November 3, 2024 and sell it today you would earn a total of 25.00 from holding Insurance Australia Group or generate 5.0% 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. Insurance Australia Group
Performance |
| Timeline |
| Direct Line Insurance |
| Insurance Australia |
Direct Line and Insurance Australia Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Direct Line and Insurance Australia
The main advantage of trading using opposite Direct Line and Insurance Australia positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Direct Line position performs unexpectedly, Insurance Australia 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 Insurance Australia will offset losses from the drop in Insurance Australia's long position.| Direct Line vs. INSURANCE AUST GRP | Direct Line vs. CHRYSALIS INVESTMENTS LTD | Direct Line vs. HK Electric Investments | Direct Line vs. New China Life |
| Insurance Australia vs. WIMFARM SA EO | Insurance Australia vs. Tradeweb Markets | Insurance Australia vs. CANON MARKETING JP | Insurance Australia vs. AGRICULTBK HADR25 YC |
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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.
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