Correlation Between Direct Line and Cromwell Property

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

Diversification Opportunities for Direct Line and Cromwell Property

0.0

Correlation Coefficient

Direct Line  Cromwell Property

Pay attention - limited upside

The 3 months correlation between Direct and Cromwell is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Direct Line Insurance and Cromwell Property Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cromwell Property 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 Cromwell Property. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cromwell Property has no effect on the direction of Direct Line i.e., Direct Line and Cromwell Property go up and down completely randomly.

Pair Corralation between Direct Line and Cromwell Property

If you would invest  1,253  in Direct Line Insurance on December 21, 2024 and sell it today you would earn a total of  160.00  from holding Direct Line Insurance or generate 12.77% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	98.33%
Values	Daily Returns

Direct Line Insurance  vs.  Cromwell Property Group

Direct Line Insurance

Risk-Adjusted Performance

OK

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

Cromwell Property

Risk-Adjusted Performance

Very Weak

Over the last 90 days Cromwell Property Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable fundamental indicators, Cromwell Property is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Direct Line and Cromwell Property

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

The idea behind Direct Line Insurance and Cromwell Property Group 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.