Correlation Between Direct Line and Supermarket Income
Can any of the company-specific risk be diversified away by investing in both Direct Line and Supermarket Income 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 Supermarket Income 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 Supermarket Income REIT, you can compare the effects of market volatilities on Direct Line and Supermarket Income 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 Supermarket Income. Check out your portfolio center. Please also check ongoing floating volatility patterns of Direct Line and Supermarket Income.
Diversification Opportunities for Direct Line and Supermarket Income
0.8 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Direct and Supermarket is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Direct Line Insurance and Supermarket Income REIT in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Supermarket Income REIT 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 Supermarket Income. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Supermarket Income REIT has no effect on the direction of Direct Line i.e., Direct Line and Supermarket Income go up and down completely randomly.
Pair Corralation between Direct Line and Supermarket Income
Assuming the 90 days trading horizon Direct Line Insurance is expected to generate 1.54 times more return on investment than Supermarket Income. However, Direct Line is 1.54 times more volatile than Supermarket Income REIT. It trades about 0.0 of its potential returns per unit of risk. Supermarket Income REIT is currently generating about -0.02 per unit of risk. If you would invest 19,848 in Direct Line Insurance on August 30, 2024 and sell it today you would lose (3,978) from holding Direct Line Insurance or give up 20.04% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Direct Line Insurance vs. Supermarket Income REIT
Performance |
| Timeline |
| Direct Line Insurance |
| Supermarket Income REIT |
Direct Line and Supermarket Income Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Direct Line and Supermarket Income
The main advantage of trading using opposite Direct Line and Supermarket Income positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Direct Line position performs unexpectedly, Supermarket Income 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 Supermarket Income will offset losses from the drop in Supermarket Income's long position.| Direct Line vs. Toyota Motor Corp | Direct Line vs. Lendinvest PLC | Direct Line vs. Neometals | Direct Line vs. Coor Service Management |
| Supermarket Income vs. CAP LEASE AVIATION | Supermarket Income vs. Litigation Capital Management | Supermarket Income vs. Coor Service Management | Supermarket Income vs. Datagroup SE |
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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.
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