Correlation Between Microsoft and Direct Line
Can any of the company-specific risk be diversified away by investing in both Microsoft 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 Microsoft and Direct Line into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and Direct Line Insurance, you can compare the effects of market volatilities on Microsoft 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 Microsoft with a short position of Direct Line. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and Direct Line.
Diversification Opportunities for Microsoft and Direct Line
0.0 | Correlation Coefficient |
Pay attention - limited upside
The 3 months correlation between Microsoft and Direct is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft 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 Microsoft 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 Microsoft 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 Microsoft i.e., Microsoft and Direct Line go up and down completely randomly.
Pair Corralation between Microsoft and Direct Line
Given the investment horizon of 90 days Microsoft is expected to under-perform the Direct Line. But the stock apears to be less risky and, when comparing its historical volatility, Microsoft is 2.67 times less risky than Direct Line. The stock trades about -0.04 of its potential returns per unit of risk. The Direct Line Insurance is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest 864.00 in Direct Line Insurance on August 31, 2024 and sell it today you would earn a total of 77.00 from holding Direct Line Insurance or generate 8.91% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Flat |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Microsoft vs. Direct Line Insurance
Performance |
| Timeline |
| Microsoft |
| Direct Line Insurance |
Microsoft and Direct Line Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and Direct Line
The main advantage of trading using opposite Microsoft and Direct Line positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft 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.| Microsoft vs. Palo Alto Networks | Microsoft vs. Uipath Inc | Microsoft vs. Block Inc | Microsoft vs. Adobe Systems Incorporated |
| Direct Line vs. Commonwealth Bank of | Direct Line vs. Barings BDC | Direct Line vs. PennantPark Floating Rate | Direct Line vs. SunOpta |
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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.
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