Correlation Between Direct Line and BANK RAKYAT

Can any of the company-specific risk be diversified away by investing in both Direct Line and BANK RAKYAT 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 BANK RAKYAT 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 BANK RAKYAT IND, you can compare the effects of market volatilities on Direct Line and BANK RAKYAT 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 BANK RAKYAT. Check out your portfolio center. Please also check ongoing floating volatility patterns of Direct Line and BANK RAKYAT.

Diversification Opportunities for Direct Line and BANK RAKYAT

-0.64

Correlation Coefficient

Direct Line  BANK RAKYAT

Excellent diversification

The 3 months correlation between Direct and BANK is -0.64. Overlapping area represents the amount of risk that can be diversified away by holding Direct Line Insurance and BANK RAKYAT IND in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BANK RAKYAT IND 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 BANK RAKYAT. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BANK RAKYAT IND has no effect on the direction of Direct Line i.e., Direct Line and BANK RAKYAT go up and down completely randomly.

Pair Corralation between Direct Line and BANK RAKYAT

Assuming the 90 days trading horizon Direct Line Insurance is expected to generate 0.48 times more return on investment than BANK RAKYAT. However, Direct Line Insurance is 2.08 times less risky than BANK RAKYAT. It trades about 0.12 of its potential returns per unit of risk. BANK RAKYAT IND is currently generating about -0.15 per unit of risk. If you would invest  299.00  in Direct Line Insurance on October 11, 2024 and sell it today you would earn a total of  9.00  from holding Direct Line Insurance or generate 3.01% return on investment over 90 days.

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

Direct Line Insurance  vs.  BANK RAKYAT IND

Direct Line Insurance

Risk-Adjusted Performance

12 of 100

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 reported solid returns over the last few months and may actually be approaching a breakup point.

BANK RAKYAT IND

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BANK RAKYAT IND has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's technical and fundamental indicators remain rather sound which may send shares a bit higher in February 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Direct Line and BANK RAKYAT

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

The idea behind Direct Line Insurance and BANK RAKYAT IND 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.