Correlation Between Eltek and Direct Line
Can any of the company-specific risk be diversified away by investing in both Eltek and Direct Line 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 Eltek and Direct Line into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Eltek and Direct Line Insurance, you can compare the effects of market volatilities on Eltek and Direct Line 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 Eltek with a short position of Direct Line. Check out your portfolio center. Please also check ongoing floating volatility patterns of Eltek and Direct Line.
Diversification Opportunities for Eltek and Direct Line
-0.17 | Correlation Coefficient |
Good diversification
The 3 months correlation between Eltek and Direct is -0.17. Overlapping area represents the amount of risk that can be diversified away by holding Eltek and Direct Line Insurance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Direct Line Insurance and Eltek 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 Eltek are associated (or correlated) with Direct Line. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Direct Line Insurance has no effect on the direction of Eltek i.e., Eltek and Direct Line go up and down completely randomly.
Pair Corralation between Eltek and Direct Line
Given the investment horizon of 90 days Eltek is expected to generate 5.77 times less return on investment than Direct Line. But when comparing it to its historical volatility, Eltek is 2.02 times less risky than Direct Line. It trades about 0.05 of its potential returns per unit of risk. Direct Line Insurance is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest 963.00 in Direct Line Insurance on September 13, 2024 and sell it today you would earn a total of 290.00 from holding Direct Line Insurance or generate 30.11% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 97.67% |
| Values | Daily Returns |
Eltek vs. Direct Line Insurance
Performance |
| Timeline |
| Eltek |
| Direct Line Insurance |
Eltek and Direct Line Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Eltek and Direct Line
The main advantage of trading using opposite Eltek and Direct Line positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Eltek position performs unexpectedly, Direct Line 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 Direct Line will offset losses from the drop in Direct Line's long position.The idea behind Eltek and Direct Line Insurance pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.| Direct Line vs. Plexus Corp | Direct Line vs. Eltek | Direct Line vs. Dream Finders Homes | Direct Line vs. Hurco Companies |
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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.
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