Correlation Between Direct Line and CAREER EDUCATION

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

Diversification Opportunities for Direct Line and CAREER EDUCATION

-0.54

Correlation Coefficient

Direct Line  CAREER EDUCATION

Excellent diversification

The 3 months correlation between Direct and CAREER is -0.54. Overlapping area represents the amount of risk that can be diversified away by holding Direct Line Insurance and CAREER EDUCATION in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CAREER EDUCATION 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 CAREER EDUCATION. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CAREER EDUCATION has no effect on the direction of Direct Line i.e., Direct Line and CAREER EDUCATION go up and down completely randomly.

Pair Corralation between Direct Line and CAREER EDUCATION

Assuming the 90 days trading horizon Direct Line Insurance is expected to generate 0.58 times more return on investment than CAREER EDUCATION. However, Direct Line Insurance is 1.72 times less risky than CAREER EDUCATION. It trades about 0.16 of its potential returns per unit of risk. CAREER EDUCATION is currently generating about -0.04 per unit of risk. If you would invest  305.00  in Direct Line Insurance on December 30, 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	Very Weak
Accuracy	100.0%
Values	Daily Returns

Direct Line Insurance  vs.  CAREER EDUCATION

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.

CAREER EDUCATION

Risk-Adjusted Performance

Very Weak

Over the last 90 days CAREER EDUCATION has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, CAREER EDUCATION is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Direct Line and CAREER EDUCATION

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

The idea behind Direct Line Insurance and CAREER EDUCATION 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.