Correlation Between Direct Line and Webster Financial
Can any of the company-specific risk be diversified away by investing in both Direct Line and Webster Financial 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 Webster Financial 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 Webster Financial, you can compare the effects of market volatilities on Direct Line and Webster Financial 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 Webster Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Direct Line and Webster Financial.
Diversification Opportunities for Direct Line and Webster Financial
-0.25 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Direct and Webster is -0.25. Overlapping area represents the amount of risk that can be diversified away by holding Direct Line Insurance and Webster Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Webster Financial 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 Webster Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Webster Financial has no effect on the direction of Direct Line i.e., Direct Line and Webster Financial go up and down completely randomly.
Pair Corralation between Direct Line and Webster Financial
Assuming the 90 days trading horizon Direct Line Insurance is expected to generate 0.71 times more return on investment than Webster Financial. However, Direct Line Insurance is 1.4 times less risky than Webster Financial. It trades about 0.23 of its potential returns per unit of risk. Webster Financial is currently generating about -0.15 per unit of risk. If you would invest 316.00 in Direct Line Insurance on December 4, 2024 and sell it today you would earn a total of 16.00 from holding Direct Line Insurance or generate 5.06% 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. Webster Financial
Performance |
| Timeline |
| Direct Line Insurance |
| Webster Financial |
Direct Line and Webster Financial Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Direct Line and Webster Financial
The main advantage of trading using opposite Direct Line and Webster Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Direct Line position performs unexpectedly, Webster Financial 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 Webster Financial will offset losses from the drop in Webster Financial's long position.| Direct Line vs. GOLD ROAD RES | Direct Line vs. United Utilities Group | Direct Line vs. QUEEN S ROAD | Direct Line vs. East Africa Metals |
| Webster Financial vs. Transport International Holdings | Webster Financial vs. Aya Gold Silver | Webster Financial vs. Yanzhou Coal Mining | Webster Financial vs. KAUFMAN ET BROAD |
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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.
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