Correlation Between Direct Line and Extra Space
Can any of the company-specific risk be diversified away by investing in both Direct Line and Extra Space 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 Extra Space 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 Extra Space Storage, you can compare the effects of market volatilities on Direct Line and Extra Space 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 Extra Space. Check out your portfolio center. Please also check ongoing floating volatility patterns of Direct Line and Extra Space.
Diversification Opportunities for Direct Line and Extra Space
0.63 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Direct and Extra is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Direct Line Insurance and Extra Space Storage in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Extra Space Storage 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 Extra Space. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Extra Space Storage has no effect on the direction of Direct Line i.e., Direct Line and Extra Space go up and down completely randomly.
Pair Corralation between Direct Line and Extra Space
Assuming the 90 days trading horizon Direct Line Insurance is expected to generate 1.33 times more return on investment than Extra Space. However, Direct Line is 1.33 times more volatile than Extra Space Storage. It trades about 0.02 of its potential returns per unit of risk. Extra Space Storage is currently generating about 0.03 per unit of risk. If you would invest 19,964 in Direct Line Insurance on August 31, 2024 and sell it today you would earn a total of 2,476 from holding Direct Line Insurance or generate 12.4% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 97.99% |
| Values | Daily Returns |
Direct Line Insurance vs. Extra Space Storage
Performance |
| Timeline |
| Direct Line Insurance |
| Extra Space Storage |
Direct Line and Extra Space Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Direct Line and Extra Space
The main advantage of trading using opposite Direct Line and Extra Space positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Direct Line position performs unexpectedly, Extra Space 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 Extra Space will offset losses from the drop in Extra Space'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 |
| Extra Space vs. Neometals | Extra Space vs. Coor Service Management | Extra Space vs. Aeorema Communications Plc | Extra Space vs. JLEN Environmental Assets |
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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.
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