Correlation Between Direct Line and American Scientf

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

Diversification Opportunities for Direct Line and American Scientf

0.34

Correlation Coefficient

Direct Line  American Scientf

Weak diversification

The 3 months correlation between Direct and American is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding Direct Line Insurance and American Scientf in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Scientf 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 American Scientf. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Scientf has no effect on the direction of Direct Line i.e., Direct Line and American Scientf go up and down completely randomly.

Pair Corralation between Direct Line and American Scientf

Assuming the 90 days horizon Direct Line is expected to generate 23.64 times less return on investment than American Scientf. But when comparing it to its historical volatility, Direct Line Insurance is 19.6 times less risky than American Scientf. It trades about 0.05 of its potential returns per unit of risk. American Scientf is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  0.00  in American Scientf on September 24, 2024 and sell it today you would earn a total of  0.01  from holding American Scientf or generate 9.223372036854776E16% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	97.58%
Values	Daily Returns

Direct Line Insurance  vs.  American Scientf

Direct Line Insurance

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Direct Line Insurance are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly uncertain basic indicators, Direct Line showed solid returns over the last few months and may actually be approaching a breakup point.

American Scientf

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in American Scientf are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile technical and fundamental indicators, American Scientf showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Direct Line and American Scientf

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

The idea behind Direct Line Insurance and American Scientf 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.

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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.