Correlation Between Direct Line and Waste Management
Can any of the company-specific risk be diversified away by investing in both Direct Line and Waste Management 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 Waste Management 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 Waste Management, you can compare the effects of market volatilities on Direct Line and Waste Management 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 Waste Management. Check out your portfolio center. Please also check ongoing floating volatility patterns of Direct Line and Waste Management.
Diversification Opportunities for Direct Line and Waste Management
-0.03 | Correlation Coefficient |
Good diversification
The 3 months correlation between Direct and Waste is -0.03. Overlapping area represents the amount of risk that can be diversified away by holding Direct Line Insurance and Waste Management in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Waste Management 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 Waste Management. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Waste Management has no effect on the direction of Direct Line i.e., Direct Line and Waste Management go up and down completely randomly.
Pair Corralation between Direct Line and Waste Management
Assuming the 90 days trading horizon Direct Line Insurance is expected to generate 1.98 times more return on investment than Waste Management. However, Direct Line is 1.98 times more volatile than Waste Management. It trades about 0.23 of its potential returns per unit of risk. Waste Management is currently generating about 0.26 per unit of risk. If you would invest 316.00 in Direct Line Insurance on December 4, 2024 and sell it today you would earn a total of 16.00 from holding Direct Line Insurance or generate 5.06% 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. Waste Management
Performance |
Timeline |
Direct Line Insurance |
Waste Management |
Direct Line and Waste Management Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Direct Line and Waste Management
The main advantage of trading using opposite Direct Line and Waste Management positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Direct Line position performs unexpectedly, Waste Management 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 Waste Management will offset losses from the drop in Waste Management's long position.Direct Line vs. GOLD ROAD RES | Direct Line vs. United Utilities Group | Direct Line vs. QUEEN S ROAD | Direct Line vs. East Africa Metals |
Waste Management vs. HK Electric Investments | Waste Management vs. PennantPark Investment | Waste Management vs. Scottish Mortgage Investment | Waste Management vs. JLF 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.
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