Correlation Between Direct Line and BANK OF CHINA
Can any of the company-specific risk be diversified away by investing in both Direct Line and BANK OF CHINA 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 BANK OF CHINA 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 BANK OF CHINA, you can compare the effects of market volatilities on Direct Line and BANK OF CHINA 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 BANK OF CHINA. Check out your portfolio center. Please also check ongoing floating volatility patterns of Direct Line and BANK OF CHINA.
Diversification Opportunities for Direct Line and BANK OF CHINA
0.72 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Direct and BANK is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Direct Line Insurance and BANK OF CHINA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BANK OF CHINA 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 BANK OF CHINA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BANK OF CHINA has no effect on the direction of Direct Line i.e., Direct Line and BANK OF CHINA go up and down completely randomly.
Pair Corralation between Direct Line and BANK OF CHINA
Assuming the 90 days trading horizon Direct Line is expected to generate 2.83 times less return on investment than BANK OF CHINA. But when comparing it to its historical volatility, Direct Line Insurance is 1.96 times less risky than BANK OF CHINA. It trades about 0.04 of its potential returns per unit of risk. BANK OF CHINA is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest 14.00 in BANK OF CHINA on October 16, 2024 and sell it today you would earn a total of 33.00 from holding BANK OF CHINA or generate 235.71% 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. BANK OF CHINA
Performance |
| Timeline |
| Direct Line Insurance |
| BANK OF CHINA |
Direct Line and BANK OF CHINA Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Direct Line and BANK OF CHINA
The main advantage of trading using opposite Direct Line and BANK OF CHINA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Direct Line position performs unexpectedly, BANK OF CHINA 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 BANK OF CHINA will offset losses from the drop in BANK OF CHINA's long position.| Direct Line vs. Texas Roadhouse | Direct Line vs. GungHo Online Entertainment | Direct Line vs. Broadwind | Direct Line vs. PACIFIC ONLINE |
| BANK OF CHINA vs. Direct Line Insurance | BANK OF CHINA vs. Tencent Music Entertainment | BANK OF CHINA vs. Discover Financial Services | BANK OF CHINA vs. Synchrony Financial |
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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.
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