Correlation Between Direct Line and Daimler Truck

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

Diversification Opportunities for Direct Line and Daimler Truck

0.65

Correlation Coefficient

Direct Line  Daimler Truck

Poor diversification

The 3 months correlation between Direct and Daimler is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Direct Line Insurance and Daimler Truck Holding in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Daimler Truck Holding 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 Daimler Truck. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Daimler Truck Holding has no effect on the direction of Direct Line i.e., Direct Line and Daimler Truck go up and down completely randomly.

Pair Corralation between Direct Line and Daimler Truck

Assuming the 90 days trading horizon Direct Line Insurance is expected to generate 0.34 times more return on investment than Daimler Truck. However, Direct Line Insurance is 2.91 times less risky than Daimler Truck. It trades about 0.15 of its potential returns per unit of risk. Daimler Truck Holding is currently generating about 0.04 per unit of risk. If you would invest  310.00  in Direct Line Insurance on December 24, 2024 and sell it today you would earn a total of  27.00  from holding Direct Line Insurance or generate 8.71% return on investment over 90 days.

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

Direct Line Insurance  vs.  Daimler Truck Holding

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 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain essential indicators, Direct Line may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Daimler Truck Holding

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Daimler Truck Holding are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile technical and fundamental indicators, Daimler Truck may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Direct Line and Daimler Truck

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

The idea behind Direct Line Insurance and Daimler Truck Holding 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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..