Correlation Between Direct Line and Compagnie Financière

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

Diversification Opportunities for Direct Line and Compagnie Financière

0.46

Correlation Coefficient

Direct Line  Compagnie Financière

Very weak diversification

The 3 months correlation between Direct and Compagnie is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding Direct Line Insurance and Compagnie Financire Richemont in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Compagnie Financière 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 Compagnie Financière. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Compagnie Financière has no effect on the direction of Direct Line i.e., Direct Line and Compagnie Financière go up and down completely randomly.

Pair Corralation between Direct Line and Compagnie Financière

Assuming the 90 days trading horizon Direct Line is expected to generate 1.68 times less return on investment than Compagnie Financière. But when comparing it to its historical volatility, Direct Line Insurance is 3.75 times less risky than Compagnie Financière. It trades about 0.15 of its potential returns per unit of risk. Compagnie Financire Richemont is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  1,480  in Compagnie Financire Richemont on December 24, 2024 and sell it today you would earn a total of  170.00  from holding Compagnie Financire Richemont or generate 11.49% return on investment over 90 days.

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

Direct Line Insurance  vs.  Compagnie Financire Richemont

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.

Compagnie Financière

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Compagnie Financire Richemont are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Compagnie Financière reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Direct Line and Compagnie Financière

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

The idea behind Direct Line Insurance and Compagnie Financire Richemont 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.