Correlation Between Direct Line and Thai Beverage

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

Diversification Opportunities for Direct Line and Thai Beverage

0.8

Correlation Coefficient

Direct Line  Thai Beverage

Very poor diversification

The 3 months correlation between Direct and Thai is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Direct Line Insurance and Thai Beverage Public in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Thai Beverage Public 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 Thai Beverage. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Thai Beverage Public has no effect on the direction of Direct Line i.e., Direct Line and Thai Beverage go up and down completely randomly.

Pair Corralation between Direct Line and Thai Beverage

Assuming the 90 days trading horizon Direct Line Insurance is expected to generate 0.47 times more return on investment than Thai Beverage. However, Direct Line Insurance is 2.13 times less risky than Thai Beverage. It trades about 0.13 of its potential returns per unit of risk. Thai Beverage Public is currently generating about 0.01 per unit of risk. If you would invest  299.00  in Direct Line Insurance on October 11, 2024 and sell it today you would earn a total of  9.00  from holding Direct Line Insurance or generate 3.01% return on investment over 90 days.

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

Direct Line Insurance  vs.  Thai Beverage Public

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.

Thai Beverage Public

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Thai Beverage Public are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Thai Beverage may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Direct Line and Thai Beverage

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

The idea behind Direct Line Insurance and Thai Beverage Public 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.