Correlation Between Direct Line and PT Barito

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

Diversification Opportunities for Direct Line and PT Barito

-0.31

Correlation Coefficient

Direct Line  PT Barito

Very good diversification

The 3 months correlation between Direct and OB8 is -0.31. Overlapping area represents the amount of risk that can be diversified away by holding Direct Line Insurance and PT Barito Pacific in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PT Barito Pacific 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 PT Barito. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PT Barito Pacific has no effect on the direction of Direct Line i.e., Direct Line and PT Barito go up and down completely randomly.

Pair Corralation between Direct Line and PT Barito

Assuming the 90 days trading horizon Direct Line Insurance is expected to generate 0.66 times more return on investment than PT Barito. However, Direct Line Insurance is 1.52 times less risky than PT Barito. It trades about 0.26 of its potential returns per unit of risk. PT Barito Pacific is currently generating about 0.05 per unit of risk. If you would invest  194.00  in Direct Line Insurance on October 7, 2024 and sell it today you would earn a total of  115.00  from holding Direct Line Insurance or generate 59.28% 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.  PT Barito Pacific

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.

PT Barito Pacific

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days PT Barito Pacific has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, PT Barito is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Direct Line and PT Barito

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

The idea behind Direct Line Insurance and PT Barito Pacific 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.