Correlation Between Cracker Barrel and Direct Line

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

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

Diversification Opportunities for Cracker Barrel and Direct Line

0.7

Correlation Coefficient

Cracker Barrel  Direct Line

Poor diversification

The 3 months correlation between Cracker and Direct is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Cracker Barrel Old 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 Cracker Barrel 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 Cracker Barrel Old 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 Cracker Barrel i.e., Cracker Barrel and Direct Line go up and down completely randomly.

Pair Corralation between Cracker Barrel and Direct Line

Given the investment horizon of 90 days Cracker Barrel Old is expected to under-perform the Direct Line. But the stock apears to be less risky and, when comparing its historical volatility, Cracker Barrel Old is 1.07 times less risky than Direct Line. The stock trades about -0.03 of its potential returns per unit of risk. The Direct Line Insurance is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  832.00  in Direct Line Insurance on October 11, 2024 and sell it today you would earn a total of  455.00  from holding Direct Line Insurance or generate 54.69% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	94.75%
Values	Daily Returns

Cracker Barrel Old  vs.  Direct Line Insurance

Cracker Barrel Old

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Cracker Barrel Old are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite quite uncertain basic indicators, Cracker Barrel disclosed solid returns over the last few months and may actually be approaching a breakup point.

Direct Line Insurance

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Direct Line Insurance are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly conflicting basic indicators, Direct Line showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Cracker Barrel and Direct Line

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