Correlation Between Urban Outfitters and Direct Line

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Can any of the company-specific risk be diversified away by investing in both Urban Outfitters 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 Urban Outfitters and Direct Line into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Urban Outfitters and Direct Line Insurance, you can compare the effects of market volatilities on Urban Outfitters 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 Urban Outfitters with a short position of Direct Line. Check out your portfolio center. Please also check ongoing floating volatility patterns of Urban Outfitters and Direct Line.

Diversification Opportunities for Urban Outfitters and Direct Line

UrbanDirectDiversified AwayUrbanDirectDiversified Away100%
0.94
  Correlation Coefficient

Almost no diversification

The 3 months correlation between Urban and Direct is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Urban Outfitters 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 Urban Outfitters 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 Urban Outfitters 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 Urban Outfitters i.e., Urban Outfitters and Direct Line go up and down completely randomly.

Pair Corralation between Urban Outfitters and Direct Line

Assuming the 90 days horizon Urban Outfitters is expected to under-perform the Direct Line. In addition to that, Urban Outfitters is 5.22 times more volatile than Direct Line Insurance. It trades about -0.18 of its total potential returns per unit of risk. Direct Line Insurance is currently generating about 0.16 per unit of volatility. If you would invest  314.00  in Direct Line Insurance on November 23, 2024 and sell it today you would earn a total of  5.00  from holding Direct Line Insurance or generate 1.59% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Strong
Accuracy100.0%
ValuesDaily Returns

Urban Outfitters  vs.  Direct Line Insurance

 Performance 
JavaScript chart by amCharts 3.21.15Dec2025Feb 0204060
JavaScript chart by amCharts 3.21.15UOF D1LN
       Timeline  
Urban Outfitters 

Risk-Adjusted Performance

Solid

 
Weak
 
Strong
Compared to the overall equity markets, risk-adjusted returns on investments in Urban Outfitters are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Urban Outfitters reported solid returns over the last few months and may actually be approaching a breakup point.
JavaScript chart by amCharts 3.21.15DecJanFebJanFeb3540455055
Direct Line Insurance 

Risk-Adjusted Performance

Solid

 
Weak
 
Strong
Compared to the overall equity markets, risk-adjusted returns on investments in Direct Line Insurance are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile essential indicators, Direct Line reported solid returns over the last few months and may actually be approaching a breakup point.
JavaScript chart by amCharts 3.21.15DecJanFebJanFeb22.22.42.62.833.2

Urban Outfitters and Direct Line Volatility Contrast

   Predicted Return Density   
JavaScript chart by amCharts 3.21.15-9.0-6.74-4.48-2.220.03772.454.957.449.94 0.0200.0250.0300.0350.0400.045
JavaScript chart by amCharts 3.21.15UOF D1LN
       Returns  

Pair Trading with Urban Outfitters and Direct Line

The main advantage of trading using opposite Urban Outfitters and Direct Line positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Urban Outfitters 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 Urban Outfitters 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.
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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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.

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