Correlation Between APPLIED MATERIALS and Direct Line

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

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

Diversification Opportunities for APPLIED MATERIALS and Direct Line

-0.62

Correlation Coefficient

APPLIED MATERIALS  Direct Line

Excellent diversification

The 3 months correlation between APPLIED and Direct is -0.62. Overlapping area represents the amount of risk that can be diversified away by holding APPLIED MATERIALS 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 APPLIED MATERIALS 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 APPLIED MATERIALS 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 APPLIED MATERIALS i.e., APPLIED MATERIALS and Direct Line go up and down completely randomly.

Pair Corralation between APPLIED MATERIALS and Direct Line

Assuming the 90 days trading horizon APPLIED MATERIALS is expected to under-perform the Direct Line. In addition to that, APPLIED MATERIALS is 2.65 times more volatile than Direct Line Insurance. It trades about -0.08 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  305.00  in Direct Line Insurance on December 29, 2024 and sell it today you would earn a total of  32.00  from holding Direct Line Insurance or generate 10.49% return on investment over 90 days.

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

APPLIED MATERIALS  vs.  Direct Line Insurance

APPLIED MATERIALS

Risk-Adjusted Performance

Very Weak

Over the last 90 days APPLIED MATERIALS has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in April 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

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 fragile essential indicators, Direct Line may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with APPLIED MATERIALS and Direct Line

The main advantage of trading using opposite APPLIED MATERIALS and Direct Line positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if APPLIED MATERIALS 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 APPLIED MATERIALS 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.