Correlation Between Direct Line and Highlight Communications

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

Diversification Opportunities for Direct Line and Highlight Communications

-0.16

Correlation Coefficient

Direct Line  Highlight Communications

Good diversification

The 3 months correlation between Direct and Highlight is -0.16. Overlapping area represents the amount of risk that can be diversified away by holding Direct Line Insurance and Highlight Communications AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Highlight Communications 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 Highlight Communications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Highlight Communications has no effect on the direction of Direct Line i.e., Direct Line and Highlight Communications go up and down completely randomly.

Pair Corralation between Direct Line and Highlight Communications

Assuming the 90 days trading horizon Direct Line is expected to generate 1.84 times less return on investment than Highlight Communications. But when comparing it to its historical volatility, Direct Line Insurance is 5.26 times less risky than Highlight Communications. It trades about 0.15 of its potential returns per unit of risk. Highlight Communications AG is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  110.00  in Highlight Communications AG on December 25, 2024 and sell it today you would earn a total of  10.00  from holding Highlight Communications AG or generate 9.09% return on investment over 90 days.

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

Direct Line Insurance  vs.  Highlight Communications AG

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.

Highlight Communications

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Highlight Communications AG are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile technical and fundamental indicators, Highlight Communications unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Direct Line and Highlight Communications

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

The idea behind Direct Line Insurance and Highlight Communications AG 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.