Correlation Between NN Group and Direct Line

Can any of the company-specific risk be diversified away by investing in both NN Group 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 NN Group and Direct Line into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between NN Group NV and Direct Line Insurance, you can compare the effects of market volatilities on NN Group 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 NN Group with a short position of Direct Line. Check out your portfolio center. Please also check ongoing floating volatility patterns of NN Group and Direct Line.

Diversification Opportunities for NN Group and Direct Line

0.87

Correlation Coefficient

NN Group  Direct Line

Very poor diversification

The 3 months correlation between 2NN and Direct is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding NN Group NV 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 NN Group 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 NN Group NV 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 NN Group i.e., NN Group and Direct Line go up and down completely randomly.

Pair Corralation between NN Group and Direct Line

Assuming the 90 days horizon NN Group NV is expected to generate 1.13 times more return on investment than Direct Line. However, NN Group is 1.13 times more volatile than Direct Line Insurance. It trades about 0.31 of its potential returns per unit of risk. Direct Line Insurance is currently generating about 0.16 per unit of risk. If you would invest  4,174  in NN Group NV on December 28, 2024 and sell it today you would earn a total of  1,008  from holding NN Group NV or generate 24.15% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.41%
Values	Daily Returns

NN Group NV  vs.  Direct Line Insurance

NN Group NV

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in NN Group NV are ranked lower than 24 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, NN Group reported solid returns over the last few months and may actually be approaching a breakup point.

Direct Line Insurance

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Direct Line Insurance are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain essential indicators, Direct Line may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with NN Group and Direct Line

The main advantage of trading using opposite NN Group and Direct Line positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NN Group 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 NN Group NV 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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.