Correlation Between Direct Line and Tigo Energy

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

Diversification Opportunities for Direct Line and Tigo Energy

-0.27

Correlation Coefficient

Direct Line  Tigo Energy

Very good diversification

The 3 months correlation between Direct and Tigo is -0.27. Overlapping area represents the amount of risk that can be diversified away by holding Direct Line Insurance and Tigo Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tigo Energy 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 Tigo Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tigo Energy has no effect on the direction of Direct Line i.e., Direct Line and Tigo Energy go up and down completely randomly.

Pair Corralation between Direct Line and Tigo Energy

Assuming the 90 days horizon Direct Line Insurance is expected to generate 1.15 times more return on investment than Tigo Energy. However, Direct Line is 1.15 times more volatile than Tigo Energy. It trades about 0.32 of its potential returns per unit of risk. Tigo Energy is currently generating about -0.03 per unit of risk. If you would invest  801.00  in Direct Line Insurance on September 19, 2024 and sell it today you would earn a total of  415.00  from holding Direct Line Insurance or generate 51.81% 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.  Tigo Energy

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

Tigo Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Tigo Energy has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's technical and fundamental indicators remain very healthy which may send shares a bit higher in January 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Direct Line and Tigo Energy

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

The idea behind Direct Line Insurance and Tigo Energy 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.

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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.