Correlation Between Direct Line and CVR Energy
Can any of the company-specific risk be diversified away by investing in both Direct Line and CVR Energy 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 CVR Energy 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 CVR Energy, you can compare the effects of market volatilities on Direct Line and CVR Energy 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 CVR Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Direct Line and CVR Energy.
Diversification Opportunities for Direct Line and CVR Energy
0.64 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Direct and CVR is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Direct Line Insurance and CVR Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CVR Energy 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 CVR Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CVR Energy has no effect on the direction of Direct Line i.e., Direct Line and CVR Energy go up and down completely randomly.
Pair Corralation between Direct Line and CVR Energy
Assuming the 90 days trading horizon Direct Line Insurance is expected to generate 2.18 times more return on investment than CVR Energy. However, Direct Line is 2.18 times more volatile than CVR Energy. It trades about 0.19 of its potential returns per unit of risk. CVR Energy is currently generating about 0.18 per unit of risk. If you would invest 16,680 in Direct Line Insurance on August 31, 2024 and sell it today you would earn a total of 5,760 from holding Direct Line Insurance or generate 34.53% 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. CVR Energy
Performance |
| Timeline |
| Direct Line Insurance |
| CVR Energy |
Direct Line and CVR Energy Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Direct Line and CVR Energy
The main advantage of trading using opposite Direct Line and CVR Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Direct Line position performs unexpectedly, CVR Energy 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 CVR Energy will offset losses from the drop in CVR Energy's long position.| Direct Line vs. Various Eateries PLC | Direct Line vs. Taiwan Semiconductor Manufacturing | Direct Line vs. National Beverage Corp | Direct Line vs. Arrow Electronics |
| CVR Energy vs. Advanced Medical Solutions | CVR Energy vs. Team Internet Group | CVR Energy vs. Alfa Financial Software | CVR Energy vs. Grand Vision Media |
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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.
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