Correlation Between Direct Line and Penn National
Can any of the company-specific risk be diversified away by investing in both Direct Line and Penn National 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 Penn National 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 Penn National Gaming, you can compare the effects of market volatilities on Direct Line and Penn National 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 Penn National. Check out your portfolio center. Please also check ongoing floating volatility patterns of Direct Line and Penn National.
Diversification Opportunities for Direct Line and Penn National
0.22 | Correlation Coefficient |
Modest diversification
The 3 months correlation between Direct and Penn is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding Direct Line Insurance and Penn National Gaming in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Penn National Gaming 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 Penn National. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Penn National Gaming has no effect on the direction of Direct Line i.e., Direct Line and Penn National go up and down completely randomly.
Pair Corralation between Direct Line and Penn National
Assuming the 90 days trading horizon Direct Line Insurance is expected to generate 1.12 times more return on investment than Penn National. However, Direct Line is 1.12 times more volatile than Penn National Gaming. It trades about 0.11 of its potential returns per unit of risk. Penn National Gaming is currently generating about 0.04 per unit of risk. If you would invest 217.00 in Direct Line Insurance on October 26, 2024 and sell it today you would earn a total of 98.00 from holding Direct Line Insurance or generate 45.16% 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. Penn National Gaming
Performance |
| Timeline |
| Direct Line Insurance |
| Penn National Gaming |
Direct Line and Penn National Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Direct Line and Penn National
The main advantage of trading using opposite Direct Line and Penn National positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Direct Line position performs unexpectedly, Penn National 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 Penn National will offset losses from the drop in Penn National's long position.| Direct Line vs. REINET INVESTMENTS SCA | Direct Line vs. PENN NATL GAMING | Direct Line vs. URBAN OUTFITTERS | Direct Line vs. MOVIE GAMES SA |
| Penn National vs. Spirent Communications plc | Penn National vs. SCOTT TECHNOLOGY | Penn National vs. Direct Line Insurance | Penn National vs. Vishay Intertechnology |
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 Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.
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