Correlation Between Direct Line and TELECOM ITALIA
Can any of the company-specific risk be diversified away by investing in both Direct Line and TELECOM ITALIA 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 TELECOM ITALIA 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 TELECOM ITALIA, you can compare the effects of market volatilities on Direct Line and TELECOM ITALIA 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 TELECOM ITALIA. Check out your portfolio center. Please also check ongoing floating volatility patterns of Direct Line and TELECOM ITALIA.
Diversification Opportunities for Direct Line and TELECOM ITALIA
0.68 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Direct and TELECOM is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Direct Line Insurance and TELECOM ITALIA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TELECOM ITALIA 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 TELECOM ITALIA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TELECOM ITALIA has no effect on the direction of Direct Line i.e., Direct Line and TELECOM ITALIA go up and down completely randomly.
Pair Corralation between Direct Line and TELECOM ITALIA
Assuming the 90 days trading horizon Direct Line is expected to generate 3.83 times less return on investment than TELECOM ITALIA. But when comparing it to its historical volatility, Direct Line Insurance is 3.76 times less risky than TELECOM ITALIA. It trades about 0.15 of its potential returns per unit of risk. TELECOM ITALIA is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest 24.00 in TELECOM ITALIA on November 6, 2024 and sell it today you would earn a total of 2.00 from holding TELECOM ITALIA or generate 8.33% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Direct Line Insurance vs. TELECOM ITALIA
Performance |
| Timeline |
| Direct Line Insurance |
| TELECOM ITALIA |
Direct Line and TELECOM ITALIA Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Direct Line and TELECOM ITALIA
The main advantage of trading using opposite Direct Line and TELECOM ITALIA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Direct Line position performs unexpectedly, TELECOM ITALIA 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 TELECOM ITALIA will offset losses from the drop in TELECOM ITALIA's long position.| Direct Line vs. CARSALESCOM | Direct Line vs. CLOVER HEALTH INV | Direct Line vs. TRADEGATE | Direct Line vs. Sims Metal Management |
| TELECOM ITALIA vs. Sunny Optical Technology | TELECOM ITALIA vs. SOLSTAD OFFSHORE NK | TELECOM ITALIA vs. Ribbon Communications | TELECOM ITALIA vs. Verizon Communications |
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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.
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