Correlation Between Direct Line and Berkshire Hathaway
Can any of the company-specific risk be diversified away by investing in both Direct Line and Berkshire Hathaway 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 Berkshire Hathaway 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 Berkshire Hathaway, you can compare the effects of market volatilities on Direct Line and Berkshire Hathaway 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 Berkshire Hathaway. Check out your portfolio center. Please also check ongoing floating volatility patterns of Direct Line and Berkshire Hathaway.
Diversification Opportunities for Direct Line and Berkshire Hathaway
-0.08 | Correlation Coefficient |
Good diversification
The 3 months correlation between Direct and Berkshire is -0.08. Overlapping area represents the amount of risk that can be diversified away by holding Direct Line Insurance and Berkshire Hathaway in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Berkshire Hathaway 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 Berkshire Hathaway. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Berkshire Hathaway has no effect on the direction of Direct Line i.e., Direct Line and Berkshire Hathaway go up and down completely randomly.
Pair Corralation between Direct Line and Berkshire Hathaway
Assuming the 90 days horizon Direct Line Insurance is expected to generate 10.88 times more return on investment than Berkshire Hathaway. However, Direct Line is 10.88 times more volatile than Berkshire Hathaway. It trades about 0.31 of its potential returns per unit of risk. Berkshire Hathaway is currently generating about -0.06 per unit of risk. If you would invest 828.00 in Direct Line Insurance on September 12, 2024 and sell it today you would earn a total of 425.00 from holding Direct Line Insurance or generate 51.33% 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. Berkshire Hathaway
Performance |
| Timeline |
| Direct Line Insurance |
| Berkshire Hathaway |
Direct Line and Berkshire Hathaway Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Direct Line and Berkshire Hathaway
The main advantage of trading using opposite Direct Line and Berkshire Hathaway positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Direct Line position performs unexpectedly, Berkshire Hathaway 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 Berkshire Hathaway will offset losses from the drop in Berkshire Hathaway's long position.| Direct Line vs. Berkshire Hathaway | Direct Line vs. Berkshire Hathaway | Direct Line vs. Zurich Insurance Group | Direct Line vs. Zurich Insurance Group |
| Berkshire Hathaway vs. American International Group | Berkshire Hathaway vs. Arch Capital Group | Berkshire Hathaway vs. Sun Life Financial | Berkshire Hathaway vs. Hartford Financial Services |
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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.
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