Correlation Between Direct Line and PUBLIC STORAGE

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

Diversification Opportunities for Direct Line and PUBLIC STORAGE

-0.68

Correlation Coefficient

Direct Line  PUBLIC STORAGE

Excellent diversification

The 3 months correlation between Direct and PUBLIC is -0.68. Overlapping area represents the amount of risk that can be diversified away by holding Direct Line Insurance and PUBLIC STORAGE PRFO in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PUBLIC STORAGE PRFO 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 PUBLIC STORAGE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PUBLIC STORAGE PRFO has no effect on the direction of Direct Line i.e., Direct Line and PUBLIC STORAGE go up and down completely randomly.

Pair Corralation between Direct Line and PUBLIC STORAGE

Assuming the 90 days trading horizon Direct Line Insurance is expected to generate 1.77 times more return on investment than PUBLIC STORAGE. However, Direct Line is 1.77 times more volatile than PUBLIC STORAGE PRFO. It trades about 0.12 of its potential returns per unit of risk. PUBLIC STORAGE PRFO is currently generating about -0.05 per unit of risk. If you would invest  296.00  in Direct Line Insurance on October 6, 2024 and sell it today you would earn a total of  11.00  from holding Direct Line Insurance or generate 3.72% return on investment over 90 days.

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

Direct Line Insurance  vs.  PUBLIC STORAGE PRFO

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.

PUBLIC STORAGE PRFO

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days PUBLIC STORAGE PRFO has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, PUBLIC STORAGE 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 PUBLIC STORAGE

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

The idea behind Direct Line Insurance and PUBLIC STORAGE PRFO 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.