Correlation Between Direct Line and Globalfoundries
Can any of the company-specific risk be diversified away by investing in both Direct Line and Globalfoundries 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 Globalfoundries 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 Globalfoundries, you can compare the effects of market volatilities on Direct Line and Globalfoundries 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 Globalfoundries. Check out your portfolio center. Please also check ongoing floating volatility patterns of Direct Line and Globalfoundries.
Diversification Opportunities for Direct Line and Globalfoundries
0.44 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Direct and Globalfoundries is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding Direct Line Insurance and Globalfoundries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Globalfoundries 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 Globalfoundries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Globalfoundries has no effect on the direction of Direct Line i.e., Direct Line and Globalfoundries go up and down completely randomly.
Pair Corralation between Direct Line and Globalfoundries
Assuming the 90 days horizon Direct Line Insurance is expected to generate 1.13 times more return on investment than Globalfoundries. However, Direct Line is 1.13 times more volatile than Globalfoundries. It trades about 0.05 of its potential returns per unit of risk. Globalfoundries is currently generating about -0.01 per unit of risk. If you would invest 832.00 in Direct Line Insurance on October 11, 2024 and sell it today you would earn a total of 455.00 from holding Direct Line Insurance or generate 54.69% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Weak |
Accuracy | 94.75% |
Values | Daily Returns |
Direct Line Insurance vs. Globalfoundries
Performance |
Timeline |
Direct Line Insurance |
Globalfoundries |
Direct Line and Globalfoundries Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Direct Line and Globalfoundries
The main advantage of trading using opposite Direct Line and Globalfoundries positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Direct Line position performs unexpectedly, Globalfoundries 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 Globalfoundries will offset losses from the drop in Globalfoundries' long position.Direct Line vs. RCI Hospitality Holdings | Direct Line vs. Treasury Wine Estates | Direct Line vs. Cracker Barrel Old | Direct Line vs. Westrock Coffee |
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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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.
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