Correlation Between Direct Line and Jutal Offshore

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

Diversification Opportunities for Direct Line and Jutal Offshore

-0.02

Correlation Coefficient

Direct Line  Jutal Offshore

Good diversification

The 3 months correlation between Direct and Jutal is -0.02. Overlapping area represents the amount of risk that can be diversified away by holding Direct Line Insurance and Jutal Offshore Oil in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Jutal Offshore Oil 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 Jutal Offshore. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Jutal Offshore Oil has no effect on the direction of Direct Line i.e., Direct Line and Jutal Offshore go up and down completely randomly.

Pair Corralation between Direct Line and Jutal Offshore

Assuming the 90 days horizon Direct Line Insurance is expected to generate 122.49 times more return on investment than Jutal Offshore. However, Direct Line is 122.49 times more volatile than Jutal Offshore Oil. It trades about 0.35 of its potential returns per unit of risk. Jutal Offshore Oil is currently generating about -0.21 per unit of risk. If you would invest  775.00  in Direct Line Insurance on September 21, 2024 and sell it today you would earn a total of  443.00  from holding Direct Line Insurance or generate 57.16% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.45%
Values	Daily Returns

Direct Line Insurance  vs.  Jutal Offshore Oil

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

Jutal Offshore Oil

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Jutal Offshore Oil has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Jutal Offshore is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Direct Line and Jutal Offshore

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

The idea behind Direct Line Insurance and Jutal Offshore Oil 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.