Correlation Between Direct Line and Western Digital
Can any of the company-specific risk be diversified away by investing in both Direct Line and Western Digital 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 Western Digital 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 Western Digital, you can compare the effects of market volatilities on Direct Line and Western Digital 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 Western Digital. Check out your portfolio center. Please also check ongoing floating volatility patterns of Direct Line and Western Digital.
Diversification Opportunities for Direct Line and Western Digital
0.04 | Correlation Coefficient |
Significant diversification
The 3 months correlation between Direct and Western is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding Direct Line Insurance and Western Digital in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Western Digital 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 Western Digital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Western Digital has no effect on the direction of Direct Line i.e., Direct Line and Western Digital go up and down completely randomly.
Pair Corralation between Direct Line and Western Digital
Assuming the 90 days trading horizon Direct Line Insurance is expected to generate 1.35 times more return on investment than Western Digital. However, Direct Line is 1.35 times more volatile than Western Digital. It trades about 0.04 of its potential returns per unit of risk. Western Digital is currently generating about 0.05 per unit of risk. If you would invest 193.00 in Direct Line Insurance on October 13, 2024 and sell it today you would earn a total of 113.00 from holding Direct Line Insurance or generate 58.55% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Direct Line Insurance vs. Western Digital
Performance |
| Timeline |
| Direct Line Insurance |
| Western Digital |
Direct Line and Western Digital Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Direct Line and Western Digital
The main advantage of trading using opposite Direct Line and Western Digital positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Direct Line position performs unexpectedly, Western Digital 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 Western Digital will offset losses from the drop in Western Digital's long position.| Direct Line vs. GREENX METALS LTD | Direct Line vs. TOMBADOR IRON LTD | Direct Line vs. United States Steel | Direct Line vs. The Japan Steel |
| Western Digital vs. TEXAS ROADHOUSE | Western Digital vs. SUN LIFE FINANCIAL | Western Digital vs. JSC Halyk bank | Western Digital vs. Direct Line 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 Top Crypto Exchanges module to search and analyze digital assets across top global cryptocurrency exchanges.
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