Correlation Between Direct Line and Airea Plc
Can any of the company-specific risk be diversified away by investing in both Direct Line and Airea Plc 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 Airea Plc 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 Airea Plc, you can compare the effects of market volatilities on Direct Line and Airea Plc 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 Airea Plc. Check out your portfolio center. Please also check ongoing floating volatility patterns of Direct Line and Airea Plc.
Diversification Opportunities for Direct Line and Airea Plc
0.23 | Correlation Coefficient |
Modest diversification
The 3 months correlation between Direct and Airea is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding Direct Line Insurance and Airea Plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Airea Plc 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 Airea Plc. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Airea Plc has no effect on the direction of Direct Line i.e., Direct Line and Airea Plc go up and down completely randomly.
Pair Corralation between Direct Line and Airea Plc
Assuming the 90 days trading horizon Direct Line Insurance is expected to generate 1.26 times more return on investment than Airea Plc. However, Direct Line is 1.26 times more volatile than Airea Plc. It trades about 0.07 of its potential returns per unit of risk. Airea Plc is currently generating about -0.03 per unit of risk. If you would invest 19,460 in Direct Line Insurance on November 28, 2024 and sell it today you would earn a total of 7,180 from holding Direct Line Insurance or generate 36.9% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Direct Line Insurance vs. Airea Plc
Performance |
| Timeline |
| Direct Line Insurance |
| Airea Plc |
Direct Line and Airea Plc Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Direct Line and Airea Plc
The main advantage of trading using opposite Direct Line and Airea Plc positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Direct Line position performs unexpectedly, Airea Plc 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 Airea Plc will offset losses from the drop in Airea Plc's long position.| Direct Line vs. Heavitree Brewery | Direct Line vs. Air Products Chemicals | Direct Line vs. Ryanair Holdings plc | Direct Line vs. Zoom Video Communications |
| Airea Plc vs. Southwest Airlines Co | Airea Plc vs. Sparebank 1 SR | Airea Plc vs. Sydbank | Airea Plc vs. Commerzbank AG |
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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.
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