Correlation Between Direct Line and Argo Group
Can any of the company-specific risk be diversified away by investing in both Direct Line and Argo Group 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 Argo Group 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 Argo Group Limited, you can compare the effects of market volatilities on Direct Line and Argo Group 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 Argo Group. Check out your portfolio center. Please also check ongoing floating volatility patterns of Direct Line and Argo Group.
Diversification Opportunities for Direct Line and Argo Group
0.53 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Direct and Argo is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding Direct Line Insurance and Argo Group Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Argo Group Limited 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 Argo Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Argo Group Limited has no effect on the direction of Direct Line i.e., Direct Line and Argo Group go up and down completely randomly.
Pair Corralation between Direct Line and Argo Group
Assuming the 90 days trading horizon Direct Line Insurance is expected to generate 0.37 times more return on investment than Argo Group. However, Direct Line Insurance is 2.72 times less risky than Argo Group. It trades about -0.18 of its potential returns per unit of risk. Argo Group Limited is currently generating about -0.14 per unit of risk. If you would invest 18,906 in Direct Line Insurance on August 29, 2024 and sell it today you would lose (3,006) from holding Direct Line Insurance or give up 15.9% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Direct Line Insurance vs. Argo Group Limited
Performance |
| Timeline |
| Direct Line Insurance |
| Argo Group Limited |
Direct Line and Argo Group Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Direct Line and Argo Group
The main advantage of trading using opposite Direct Line and Argo Group positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Direct Line position performs unexpectedly, Argo Group 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 Argo Group will offset losses from the drop in Argo Group's long position.| Direct Line vs. Toyota Motor Corp | Direct Line vs. Lendinvest PLC | Direct Line vs. Neometals | Direct Line vs. Coor Service Management |
| Argo Group vs. Prudential Financial | Argo Group vs. Global Net Lease | Argo Group vs. Eastman Chemical Co | Argo Group vs. PPHE Hotel Group |
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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.
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