Correlation Between Direct Line and Globalfoundries

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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 Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy94.75%
ValuesDaily Returns

Direct Line Insurance  vs.  Globalfoundries

 Performance 
       Timeline  
Direct Line Insurance 

Risk-Adjusted Performance

9 of 100

 
Weak
 
Strong
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 conflicting basic indicators, Direct Line showed solid returns over the last few months and may actually be approaching a breakup point.
Globalfoundries 

Risk-Adjusted Performance

1 of 100

 
Weak
 
Strong
Weak
Compared to the overall equity markets, risk-adjusted returns on investments in Globalfoundries are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable technical and fundamental indicators, Globalfoundries is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

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.
The idea behind Direct Line Insurance and Globalfoundries 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 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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