Correlation Between Direct Line and AutoNation
Can any of the company-specific risk be diversified away by investing in both Direct Line and AutoNation 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 AutoNation 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 AutoNation, you can compare the effects of market volatilities on Direct Line and AutoNation 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 AutoNation. Check out your portfolio center. Please also check ongoing floating volatility patterns of Direct Line and AutoNation.
Diversification Opportunities for Direct Line and AutoNation
0.79 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Direct and AutoNation is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Direct Line Insurance and AutoNation in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AutoNation 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 AutoNation. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AutoNation has no effect on the direction of Direct Line i.e., Direct Line and AutoNation go up and down completely randomly.
Pair Corralation between Direct Line and AutoNation
Assuming the 90 days trading horizon Direct Line Insurance is expected to generate 1.37 times more return on investment than AutoNation. However, Direct Line is 1.37 times more volatile than AutoNation. It trades about 0.19 of its potential returns per unit of risk. AutoNation is currently generating about 0.06 per unit of risk. If you would invest 280.00 in Direct Line Insurance on October 30, 2024 and sell it today you would earn a total of 37.00 from holding Direct Line Insurance or generate 13.21% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Significant |
Accuracy | 97.37% |
Values | Daily Returns |
Direct Line Insurance vs. AutoNation
Performance |
Timeline |
Direct Line Insurance |
AutoNation |
Direct Line and AutoNation Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Direct Line and AutoNation
The main advantage of trading using opposite Direct Line and AutoNation positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Direct Line position performs unexpectedly, AutoNation 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 AutoNation will offset losses from the drop in AutoNation's long position.Direct Line vs. PARKEN Sport Entertainment | Direct Line vs. ZINC MEDIA GR | Direct Line vs. Suntory Beverage Food | Direct Line vs. Flutter Entertainment PLC |
AutoNation vs. GWILLI FOOD | AutoNation vs. Gruppo Mutuionline SpA | AutoNation vs. PLANT VEDA FOODS | AutoNation vs. Lamar Advertising |
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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.
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