Correlation Between Direct Line and Naked Wines
Can any of the company-specific risk be diversified away by investing in both Direct Line and Naked Wines 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 Naked Wines 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 Naked Wines plc, you can compare the effects of market volatilities on Direct Line and Naked Wines 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 Naked Wines. Check out your portfolio center. Please also check ongoing floating volatility patterns of Direct Line and Naked Wines.
Diversification Opportunities for Direct Line and Naked Wines
-0.12 | Correlation Coefficient |
Good diversification
The 3 months correlation between Direct and Naked is -0.12. Overlapping area represents the amount of risk that can be diversified away by holding Direct Line Insurance and Naked Wines plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Naked Wines 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 Naked Wines. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Naked Wines plc has no effect on the direction of Direct Line i.e., Direct Line and Naked Wines go up and down completely randomly.
Pair Corralation between Direct Line and Naked Wines
Assuming the 90 days trading horizon Direct Line Insurance is expected to generate 1.33 times more return on investment than Naked Wines. However, Direct Line is 1.33 times more volatile than Naked Wines plc. It trades about 0.09 of its potential returns per unit of risk. Naked Wines plc is currently generating about 0.06 per unit of risk. If you would invest 18,807 in Direct Line Insurance on November 28, 2024 and sell it today you would earn a total of 7,833 from holding Direct Line Insurance or generate 41.65% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Direct Line Insurance vs. Naked Wines plc
Performance |
| Timeline |
| Direct Line Insurance |
| Naked Wines plc |
Direct Line and Naked Wines Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Direct Line and Naked Wines
The main advantage of trading using opposite Direct Line and Naked Wines positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Direct Line position performs unexpectedly, Naked Wines 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 Naked Wines will offset losses from the drop in Naked Wines' long position.| Direct Line vs. Heavitree Brewery | Direct Line vs. Air Products Chemicals | Direct Line vs. Ryanair Holdings plc | Direct Line vs. Zoom Video Communications |
| Naked Wines vs. Bellevue Healthcare Trust | Naked Wines vs. Optima Health plc | Naked Wines vs. Cardinal Health | Naked Wines vs. Invesco Physical Silver |
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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.
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