Correlation Between INSURANCE AUST and Direct Line
Can any of the company-specific risk be diversified away by investing in both INSURANCE AUST 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 INSURANCE AUST and Direct Line into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between INSURANCE AUST GRP and Direct Line Insurance, you can compare the effects of market volatilities on INSURANCE AUST 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 INSURANCE AUST with a short position of Direct Line. Check out your portfolio center. Please also check ongoing floating volatility patterns of INSURANCE AUST and Direct Line.
Diversification Opportunities for INSURANCE AUST and Direct Line
0.59 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between INSURANCE and Direct is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding INSURANCE AUST GRP 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 INSURANCE AUST 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 INSURANCE AUST GRP 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 INSURANCE AUST i.e., INSURANCE AUST and Direct Line go up and down completely randomly.
Pair Corralation between INSURANCE AUST and Direct Line
Assuming the 90 days trading horizon INSURANCE AUST GRP is expected to generate 0.44 times more return on investment than Direct Line. However, INSURANCE AUST GRP is 2.27 times less risky than Direct Line. It trades about 0.09 of its potential returns per unit of risk. Direct Line Insurance is currently generating about 0.03 per unit of risk. If you would invest 266.00 in INSURANCE AUST GRP on September 20, 2024 and sell it today you would earn a total of 239.00 from holding INSURANCE AUST GRP or generate 89.85% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Weak |
Accuracy | 100.0% |
Values | Daily Returns |
INSURANCE AUST GRP vs. Direct Line Insurance
Performance |
Timeline |
INSURANCE AUST GRP |
Direct Line Insurance |
INSURANCE AUST and Direct Line Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with INSURANCE AUST and Direct Line
The main advantage of trading using opposite INSURANCE AUST and Direct Line positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if INSURANCE AUST 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.INSURANCE AUST vs. Apple Inc | INSURANCE AUST vs. Apple Inc | INSURANCE AUST vs. Apple Inc | INSURANCE AUST vs. Microsoft |
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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 Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.
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