Correlation Between European Metals and Direct Line
Can any of the company-specific risk be diversified away by investing in both European Metals 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 European Metals and Direct Line into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between European Metals Holdings and Direct Line Insurance, you can compare the effects of market volatilities on European Metals 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 European Metals with a short position of Direct Line. Check out your portfolio center. Please also check ongoing floating volatility patterns of European Metals and Direct Line.
Diversification Opportunities for European Metals and Direct Line
-0.32 | Correlation Coefficient |
Very good diversification
The 3 months correlation between European and Direct is -0.32. Overlapping area represents the amount of risk that can be diversified away by holding European Metals Holdings 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 European Metals 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 European Metals Holdings 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 European Metals i.e., European Metals and Direct Line go up and down completely randomly.
Pair Corralation between European Metals and Direct Line
Assuming the 90 days trading horizon European Metals Holdings is expected to under-perform the Direct Line. But the stock apears to be less risky and, when comparing its historical volatility, European Metals Holdings is 4.8 times less risky than Direct Line. The stock trades about -0.22 of its potential returns per unit of risk. The Direct Line Insurance is currently generating about 0.28 of returns per unit of risk over similar time horizon. If you would invest 15,260 in Direct Line Insurance on September 13, 2024 and sell it today you would earn a total of 9,440 from holding Direct Line Insurance or generate 61.86% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
European Metals Holdings vs. Direct Line Insurance
Performance |
| Timeline |
| European Metals Holdings |
| Direct Line Insurance |
European Metals and Direct Line Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with European Metals and Direct Line
The main advantage of trading using opposite European Metals and Direct Line positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if European Metals 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.| European Metals vs. Givaudan SA | European Metals vs. Antofagasta PLC | European Metals vs. Ferrexpo PLC | European Metals vs. Atalaya Mining |
| Direct Line vs. GreenX Metals | Direct Line vs. CleanTech Lithium plc | Direct Line vs. Endeavour Mining Corp | Direct Line vs. Innovative Industrial Properties |
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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.
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