Correlation Between Direct Line and Greencore Group

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

Diversification Opportunities for Direct Line and Greencore Group

0.12

Correlation Coefficient

Direct Line  Greencore Group

Average diversification

The 3 months correlation between Direct and Greencore is 0.12. Overlapping area represents the amount of risk that can be diversified away by holding Direct Line Insurance and Greencore Group PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Greencore Group PLC 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 Greencore Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Greencore Group PLC has no effect on the direction of Direct Line i.e., Direct Line and Greencore Group go up and down completely randomly.

Pair Corralation between Direct Line and Greencore Group

Assuming the 90 days horizon Direct Line Insurance is expected to generate 0.35 times more return on investment than Greencore Group. However, Direct Line Insurance is 2.86 times less risky than Greencore Group. It trades about 0.14 of its potential returns per unit of risk. Greencore Group PLC is currently generating about -0.17 per unit of risk. If you would invest  1,253  in Direct Line Insurance on October 9, 2024 and sell it today you would earn a total of  34.00  from holding Direct Line Insurance or generate 2.71% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Direct Line Insurance  vs.  Greencore Group PLC

Direct Line Insurance

Risk-Adjusted Performance

9 of 100

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

Greencore Group PLC

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Greencore Group PLC are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly uncertain technical and fundamental indicators, Greencore Group may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Direct Line and Greencore Group

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

The idea behind Direct Line Insurance and Greencore Group PLC 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.