Correlation Between Direct Line and Lendinvest PLC
Can any of the company-specific risk be diversified away by investing in both Direct Line and Lendinvest 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 Lendinvest 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 Lendinvest PLC, you can compare the effects of market volatilities on Direct Line and Lendinvest 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 Lendinvest PLC. Check out your portfolio center. Please also check ongoing floating volatility patterns of Direct Line and Lendinvest PLC.
Diversification Opportunities for Direct Line and Lendinvest PLC
0.7 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Direct and Lendinvest is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Direct Line Insurance and Lendinvest PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lendinvest 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 Lendinvest PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lendinvest PLC has no effect on the direction of Direct Line i.e., Direct Line and Lendinvest PLC go up and down completely randomly.
Pair Corralation between Direct Line and Lendinvest PLC
Assuming the 90 days trading horizon Direct Line Insurance is expected to under-perform the Lendinvest PLC. In addition to that, Direct Line is 1.39 times more volatile than Lendinvest PLC. It trades about -0.16 of its total potential returns per unit of risk. Lendinvest PLC is currently generating about 0.08 per unit of volatility. If you would invest 2,600 in Lendinvest PLC on August 29, 2024 and sell it today you would earn a total of 50.00 from holding Lendinvest PLC or generate 1.92% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 95.65% |
| Values | Daily Returns |
Direct Line Insurance vs. Lendinvest PLC
Performance |
| Timeline |
| Direct Line Insurance |
| Lendinvest PLC |
Direct Line and Lendinvest PLC Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Direct Line and Lendinvest PLC
The main advantage of trading using opposite Direct Line and Lendinvest PLC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Direct Line position performs unexpectedly, Lendinvest 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 Lendinvest PLC will offset losses from the drop in Lendinvest PLC's long position.| Direct Line vs. Toyota Motor Corp | Direct Line vs. Lendinvest PLC | Direct Line vs. Neometals | Direct Line vs. Coor Service Management |
| Lendinvest PLC vs. Toyota Motor Corp | Lendinvest PLC vs. Neometals | Lendinvest PLC vs. Coor Service Management | Lendinvest PLC vs. Albion Technology General |
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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.
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