Correlation Between Direct Line and Allianz SE

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

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

Diversification Opportunities for Direct Line and Allianz SE

0.92

Correlation Coefficient

Direct Line  Allianz SE

Almost no diversification

The 3 months correlation between Direct and Allianz is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Direct Line Insurance and Allianz SE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Allianz SE and Direct Line 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 Direct Line Insurance are associated (or correlated) with Allianz SE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Allianz SE has no effect on the direction of Direct Line i.e., Direct Line and Allianz SE go up and down completely randomly.

Pair Corralation between Direct Line and Allianz SE

Assuming the 90 days trading horizon Direct Line is expected to generate 1.88 times less return on investment than Allianz SE. In addition to that, Direct Line is 1.08 times more volatile than Allianz SE. It trades about 0.16 of its total potential returns per unit of risk. Allianz SE is currently generating about 0.33 per unit of volatility. If you would invest  29,560  in Allianz SE on December 30, 2024 and sell it today you would earn a total of  6,210  from holding Allianz SE or generate 21.01% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	100.0%
Values	Daily Returns

Direct Line Insurance  vs.  Allianz SE

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.

Allianz SE

Risk-Adjusted Performance

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Allianz SE are ranked lower than 25 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Allianz SE reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Direct Line and Allianz SE

The main advantage of trading using opposite Direct Line and Allianz SE positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Direct Line position performs unexpectedly, Allianz SE 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 Allianz SE will offset losses from the drop in Allianz SE's long position.

The idea behind Direct Line Insurance and Allianz SE 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.