Correlation Between Direct Line and Ross Stores
Can any of the company-specific risk be diversified away by investing in both Direct Line and Ross Stores 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 Ross Stores 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 Ross Stores, you can compare the effects of market volatilities on Direct Line and Ross Stores 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 Ross Stores. Check out your portfolio center. Please also check ongoing floating volatility patterns of Direct Line and Ross Stores.
Diversification Opportunities for Direct Line and Ross Stores
0.44 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Direct and Ross is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding Direct Line Insurance and Ross Stores in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ross Stores 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 Ross Stores. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ross Stores has no effect on the direction of Direct Line i.e., Direct Line and Ross Stores go up and down completely randomly.
Pair Corralation between Direct Line and Ross Stores
Assuming the 90 days trading horizon Direct Line Insurance is expected to generate 1.68 times more return on investment than Ross Stores. However, Direct Line is 1.68 times more volatile than Ross Stores. It trades about 0.07 of its potential returns per unit of risk. Ross Stores is currently generating about 0.08 per unit of risk. If you would invest 213.00 in Direct Line Insurance on September 3, 2024 and sell it today you would earn a total of 67.00 from holding Direct Line Insurance or generate 31.46% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Direct Line Insurance vs. Ross Stores
Performance |
| Timeline |
| Direct Line Insurance |
| Ross Stores |
Direct Line and Ross Stores Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Direct Line and Ross Stores
The main advantage of trading using opposite Direct Line and Ross Stores positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Direct Line position performs unexpectedly, Ross Stores 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 Ross Stores will offset losses from the drop in Ross Stores' long position.| Direct Line vs. Allianz SE | Direct Line vs. Superior Plus Corp | Direct Line vs. NMI Holdings | Direct Line vs. Origin Agritech |
| Ross Stores vs. BORR DRILLING NEW | Ross Stores vs. Direct Line Insurance | Ross Stores vs. Safety Insurance Group | Ross Stores vs. Japan Post Insurance |
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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