Correlation Between Direct Line and Various Eateries
Can any of the company-specific risk be diversified away by investing in both Direct Line and Various Eateries 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 Various Eateries 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 Various Eateries PLC, you can compare the effects of market volatilities on Direct Line and Various Eateries 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 Various Eateries. Check out your portfolio center. Please also check ongoing floating volatility patterns of Direct Line and Various Eateries.
Diversification Opportunities for Direct Line and Various Eateries
0.31 | Correlation Coefficient |
Weak diversification
The 3 months correlation between Direct and Various is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding Direct Line Insurance and Various Eateries PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Various Eateries 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 Various Eateries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Various Eateries PLC has no effect on the direction of Direct Line i.e., Direct Line and Various Eateries go up and down completely randomly.
Pair Corralation between Direct Line and Various Eateries
Assuming the 90 days trading horizon Direct Line Insurance is expected to generate 2.89 times more return on investment than Various Eateries. However, Direct Line is 2.89 times more volatile than Various Eateries PLC. It trades about 0.04 of its potential returns per unit of risk. Various Eateries PLC is currently generating about -0.11 per unit of risk. If you would invest 18,947 in Direct Line Insurance on September 2, 2024 and sell it today you would earn a total of 4,533 from holding Direct Line Insurance or generate 23.92% 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. Various Eateries PLC
Performance |
| Timeline |
| Direct Line Insurance |
| Various Eateries PLC |
Direct Line and Various Eateries Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Direct Line and Various Eateries
The main advantage of trading using opposite Direct Line and Various Eateries positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Direct Line position performs unexpectedly, Various Eateries 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 Various Eateries will offset losses from the drop in Various Eateries' long position.| Direct Line vs. Gaztransport et Technigaz | Direct Line vs. International Biotechnology Trust | Direct Line vs. DXC Technology Co | Direct Line vs. Spotify Technology SA |
| Various Eateries vs. Viridian Therapeutics | Various Eateries vs. CVR Energy | Various Eateries vs. Nationwide Building Society | Various Eateries vs. Dollar Tree |
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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.
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