Correlation Between Direct Line and CATCo Reinsurance
Can any of the company-specific risk be diversified away by investing in both Direct Line and CATCo Reinsurance 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 CATCo Reinsurance 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 CATCo Reinsurance Opportunities, you can compare the effects of market volatilities on Direct Line and CATCo Reinsurance 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 CATCo Reinsurance. Check out your portfolio center. Please also check ongoing floating volatility patterns of Direct Line and CATCo Reinsurance.
Diversification Opportunities for Direct Line and CATCo Reinsurance
-0.42 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Direct and CATCo is -0.42. Overlapping area represents the amount of risk that can be diversified away by holding Direct Line Insurance and CATCo Reinsurance Opportunitie in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CATCo Reinsurance 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 CATCo Reinsurance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CATCo Reinsurance has no effect on the direction of Direct Line i.e., Direct Line and CATCo Reinsurance go up and down completely randomly.
Pair Corralation between Direct Line and CATCo Reinsurance
Assuming the 90 days trading horizon Direct Line is expected to generate 1.17 times less return on investment than CATCo Reinsurance. But when comparing it to its historical volatility, Direct Line Insurance is 1.18 times less risky than CATCo Reinsurance. It trades about 0.22 of its potential returns per unit of risk. CATCo Reinsurance Opportunities is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest 2,500 in CATCo Reinsurance Opportunities on September 1, 2024 and sell it today you would earn a total of 1,250 from holding CATCo Reinsurance Opportunities or generate 50.0% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Direct Line Insurance vs. CATCo Reinsurance Opportunitie
Performance |
| Timeline |
| Direct Line Insurance |
| CATCo Reinsurance |
Direct Line and CATCo Reinsurance Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Direct Line and CATCo Reinsurance
The main advantage of trading using opposite Direct Line and CATCo Reinsurance positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Direct Line position performs unexpectedly, CATCo Reinsurance 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 CATCo Reinsurance will offset losses from the drop in CATCo Reinsurance's long position.| Direct Line vs. Concurrent Technologies Plc | Direct Line vs. Celebrus Technologies plc | Direct Line vs. Odfjell Drilling | Direct Line vs. Allianz Technology Trust |
| CATCo Reinsurance vs. Silvercorp Metals | CATCo Reinsurance vs. Future Metals NL | CATCo Reinsurance vs. Panther Metals PLC | CATCo Reinsurance vs. Wheaton Precious Metals |
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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..
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