Correlation Between H FARM and Direct Line

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

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

Diversification Opportunities for H FARM and Direct Line

-0.3

Correlation Coefficient

H FARM  Direct Line

Very good diversification

The 3 months correlation between 5JQ and Direct is -0.3. Overlapping area represents the amount of risk that can be diversified away by holding H FARM SPA 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 H FARM 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 H FARM SPA 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 H FARM i.e., H FARM and Direct Line go up and down completely randomly.

Pair Corralation between H FARM and Direct Line

Assuming the 90 days horizon H FARM SPA is expected to under-perform the Direct Line. In addition to that, H FARM is 1.03 times more volatile than Direct Line Insurance. It trades about -0.01 of its total potential returns per unit of risk. Direct Line Insurance is currently generating about 0.15 per unit of volatility. If you would invest  210.00  in Direct Line Insurance on September 17, 2024 and sell it today you would earn a total of  86.00  from holding Direct Line Insurance or generate 40.95% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

H FARM SPA  vs.  Direct Line Insurance

H FARM SPA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days H FARM SPA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, H FARM is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Direct Line Insurance

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Direct Line Insurance are ranked lower than 11 (%) 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.

Pair Trading with H FARM and Direct Line

The main advantage of trading using opposite H FARM and Direct Line positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if H FARM 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 H FARM SPA 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.

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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.