Correlation Between Direct Line and Reinsurance Group
Can any of the company-specific risk be diversified away by investing in both Direct Line and Reinsurance Group 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 Reinsurance Group 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 Reinsurance Group of, you can compare the effects of market volatilities on Direct Line and Reinsurance Group 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 Reinsurance Group. Check out your portfolio center. Please also check ongoing floating volatility patterns of Direct Line and Reinsurance Group.
Diversification Opportunities for Direct Line and Reinsurance Group
-0.2 | Correlation Coefficient |
Good diversification
The 3 months correlation between Direct and Reinsurance is -0.2. Overlapping area represents the amount of risk that can be diversified away by holding Direct Line Insurance and Reinsurance Group of in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Reinsurance Group 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 Reinsurance Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Reinsurance Group has no effect on the direction of Direct Line i.e., Direct Line and Reinsurance Group go up and down completely randomly.
Pair Corralation between Direct Line and Reinsurance Group
Assuming the 90 days trading horizon Direct Line Insurance is expected to generate 3.37 times more return on investment than Reinsurance Group. However, Direct Line is 3.37 times more volatile than Reinsurance Group of. It trades about 0.28 of its potential returns per unit of risk. Reinsurance Group of is currently generating about 0.26 per unit of risk. If you would invest 199.00 in Direct Line Insurance on September 3, 2024 and sell it today you would earn a total of 81.00 from holding Direct Line Insurance or generate 40.7% 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. Reinsurance Group of
Performance |
| Timeline |
| Direct Line Insurance |
| Reinsurance Group |
Direct Line and Reinsurance Group Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Direct Line and Reinsurance Group
The main advantage of trading using opposite Direct Line and Reinsurance Group positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Direct Line position performs unexpectedly, Reinsurance Group 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 Reinsurance Group will offset losses from the drop in Reinsurance Group's long position.| Direct Line vs. Allianz SE | Direct Line vs. Superior Plus Corp | Direct Line vs. NMI Holdings | Direct Line vs. Origin Agritech |
| Reinsurance Group vs. MUENCHRUECKUNSADR 110 | Reinsurance Group vs. Superior Plus Corp | Reinsurance Group vs. NMI Holdings | Reinsurance Group vs. Origin Agritech |
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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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