Correlation Between Direct Line and Flutter Entertainment
Can any of the company-specific risk be diversified away by investing in both Direct Line and Flutter Entertainment 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 Flutter Entertainment 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 Flutter Entertainment PLC, you can compare the effects of market volatilities on Direct Line and Flutter Entertainment 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 Flutter Entertainment. Check out your portfolio center. Please also check ongoing floating volatility patterns of Direct Line and Flutter Entertainment.
Diversification Opportunities for Direct Line and Flutter Entertainment
-0.44 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Direct and Flutter is -0.44. Overlapping area represents the amount of risk that can be diversified away by holding Direct Line Insurance and Flutter Entertainment PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Flutter Entertainment PLC 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 Flutter Entertainment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Flutter Entertainment PLC has no effect on the direction of Direct Line i.e., Direct Line and Flutter Entertainment go up and down completely randomly.
Pair Corralation between Direct Line and Flutter Entertainment
Assuming the 90 days trading horizon Direct Line Insurance is expected to generate 1.39 times more return on investment than Flutter Entertainment. However, Direct Line is 1.39 times more volatile than Flutter Entertainment PLC. It trades about 0.06 of its potential returns per unit of risk. Flutter Entertainment PLC is currently generating about 0.03 per unit of risk. If you would invest 168.00 in Direct Line Insurance on December 30, 2024 and sell it today you would earn a total of 169.00 from holding Direct Line Insurance or generate 100.6% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Direct Line Insurance vs. Flutter Entertainment PLC
Performance |
| Timeline |
| Direct Line Insurance |
| Flutter Entertainment PLC |
Direct Line and Flutter Entertainment Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Direct Line and Flutter Entertainment
The main advantage of trading using opposite Direct Line and Flutter Entertainment positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Direct Line position performs unexpectedly, Flutter Entertainment 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 Flutter Entertainment will offset losses from the drop in Flutter Entertainment's long position.| Direct Line vs. Sumitomo Rubber Industries | ||
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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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.
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