Correlation Between Direct Line and SAP SE
Can any of the company-specific risk be diversified away by investing in both Direct Line and SAP SE 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 SAP SE 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 SAP SE, you can compare the effects of market volatilities on Direct Line and SAP SE 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 SAP SE. Check out your portfolio center. Please also check ongoing floating volatility patterns of Direct Line and SAP SE.
Diversification Opportunities for Direct Line and SAP SE
-0.17 | Correlation Coefficient |
Good diversification
The 3 months correlation between Direct and SAP is -0.17. Overlapping area represents the amount of risk that can be diversified away by holding Direct Line Insurance and SAP SE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SAP SE 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 SAP SE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SAP SE has no effect on the direction of Direct Line i.e., Direct Line and SAP SE go up and down completely randomly.
Pair Corralation between Direct Line and SAP SE
Assuming the 90 days trading horizon Direct Line is expected to generate 1.38 times less return on investment than SAP SE. In addition to that, Direct Line is 1.81 times more volatile than SAP SE. It trades about 0.05 of its total potential returns per unit of risk. SAP SE is currently generating about 0.11 per unit of volatility. If you would invest 14,301 in SAP SE on September 4, 2024 and sell it today you would earn a total of 8,299 from holding SAP SE or generate 58.03% 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. SAP SE
Performance |
| Timeline |
| Direct Line Insurance |
| SAP SE |
Direct Line and SAP SE Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Direct Line and SAP SE
The main advantage of trading using opposite Direct Line and SAP SE positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Direct Line position performs unexpectedly, SAP SE 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 SAP SE will offset losses from the drop in SAP SE's long position.| Direct Line vs. Allianz SE | Direct Line vs. Superior Plus Corp | Direct Line vs. NMI Holdings | Direct Line vs. Origin Agritech |
| SAP SE vs. Microchip Technology Incorporated | SAP SE vs. RYU Apparel | SAP SE vs. DALATA HOTEL | SAP SE vs. Wyndham Hotels Resorts |
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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.
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