Correlation Between Direct Line and Martin Marietta

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

Diversification Opportunities for Direct Line and Martin Marietta

0.07

Correlation Coefficient

Direct Line  Martin Marietta

Significant diversification

The 3 months correlation between Direct and Martin is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding Direct Line Insurance and Martin Marietta Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Martin Marietta Materials 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 Martin Marietta. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Martin Marietta Materials has no effect on the direction of Direct Line i.e., Direct Line and Martin Marietta go up and down completely randomly.

Pair Corralation between Direct Line and Martin Marietta

Assuming the 90 days trading horizon Direct Line Insurance is expected to generate 2.97 times more return on investment than Martin Marietta. However, Direct Line is 2.97 times more volatile than Martin Marietta Materials. It trades about 0.15 of its potential returns per unit of risk. Martin Marietta Materials is currently generating about 0.11 per unit of risk. If you would invest  210.00  in Direct Line Insurance on September 17, 2024 and sell it today you would earn a total of  86.00  from holding Direct Line Insurance or generate 40.95% return on investment over 90 days.

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

Direct Line Insurance  vs.  Martin Marietta Materials

Direct Line Insurance

Risk-Adjusted Performance

11 of 100

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 fragile essential indicators, Direct Line reported solid returns over the last few months and may actually be approaching a breakup point.

Martin Marietta Materials

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Martin Marietta Materials are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Martin Marietta may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Direct Line and Martin Marietta

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

The idea behind Direct Line Insurance and Martin Marietta Materials 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.

Check out your portfolio center.

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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.