Correlation Between Direct Line and CONSOLIDATED

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

Diversification Opportunities for Direct Line and CONSOLIDATED

0.64

Correlation Coefficient

Direct Line  CONSOLIDATED

Poor diversification

The 3 months correlation between Direct and CONSOLIDATED is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Direct Line Insurance and CONSOLIDATED EDISON N in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CONSOLIDATED EDISON 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 CONSOLIDATED. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CONSOLIDATED EDISON has no effect on the direction of Direct Line i.e., Direct Line and CONSOLIDATED go up and down completely randomly.

Pair Corralation between Direct Line and CONSOLIDATED

Assuming the 90 days horizon Direct Line Insurance is expected to generate 4.63 times more return on investment than CONSOLIDATED. However, Direct Line is 4.63 times more volatile than CONSOLIDATED EDISON N. It trades about 0.15 of its potential returns per unit of risk. CONSOLIDATED EDISON N is currently generating about -0.12 per unit of risk. If you would invest  920.00  in Direct Line Insurance on October 26, 2024 and sell it today you would earn a total of  389.00  from holding Direct Line Insurance or generate 42.28% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	62.71%
Values	Daily Returns

Direct Line Insurance  vs.  CONSOLIDATED EDISON N

Direct Line Insurance

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Direct Line Insurance are ranked lower than 12 (%) 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.

CONSOLIDATED EDISON

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CONSOLIDATED EDISON N has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Bond's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for CONSOLIDATED EDISON N investors.

Pair Trading with Direct Line and CONSOLIDATED

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

The idea behind Direct Line Insurance and CONSOLIDATED EDISON N 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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.