Correlation Between Direct Line and Pharol SGPS

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

Diversification Opportunities for Direct Line and Pharol SGPS

-0.25

Correlation Coefficient

Direct Line  Pharol SGPS

Very good diversification

The 3 months correlation between Direct and Pharol is -0.25. Overlapping area represents the amount of risk that can be diversified away by holding Direct Line Insurance and Pharol SGPS SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pharol SGPS SA 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 Pharol SGPS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pharol SGPS SA has no effect on the direction of Direct Line i.e., Direct Line and Pharol SGPS go up and down completely randomly.

Pair Corralation between Direct Line and Pharol SGPS

If you would invest  801.00  in Direct Line Insurance on September 17, 2024 and sell it today you would earn a total of  452.00  from holding Direct Line Insurance or generate 56.43% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.24%
Values	Daily Returns

Direct Line Insurance  vs.  Pharol SGPS SA

Direct Line Insurance

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Direct Line Insurance are ranked lower than 10 (%) 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.

Pharol SGPS SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Pharol SGPS SA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Direct Line and Pharol SGPS

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

The idea behind Direct Line Insurance and Pharol SGPS SA 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 Financial Widgets module to easily integrated Macroaxis content with over 30 different plug-and-play financial widgets.