Correlation Between Strategic Investments and Direct Line

Can any of the company-specific risk be diversified away by investing in both Strategic Investments and Direct Line 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 Strategic Investments and Direct Line into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Strategic Investments AS and Direct Line Insurance, you can compare the effects of market volatilities on Strategic Investments and Direct Line 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 Strategic Investments with a short position of Direct Line. Check out your portfolio center. Please also check ongoing floating volatility patterns of Strategic Investments and Direct Line.

Diversification Opportunities for Strategic Investments and Direct Line

-0.53

Correlation Coefficient

Strategic Investments  Direct Line

Excellent diversification

The 3 months correlation between Strategic and Direct is -0.53. Overlapping area represents the amount of risk that can be diversified away by holding Strategic Investments AS and Direct Line Insurance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Direct Line Insurance and Strategic Investments 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 Strategic Investments AS are associated (or correlated) with Direct Line. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Direct Line Insurance has no effect on the direction of Strategic Investments i.e., Strategic Investments and Direct Line go up and down completely randomly.

Pair Corralation between Strategic Investments and Direct Line

Assuming the 90 days horizon Strategic Investments AS is expected to generate 1.56 times more return on investment than Direct Line. However, Strategic Investments is 1.56 times more volatile than Direct Line Insurance. It trades about 0.04 of its potential returns per unit of risk. Direct Line Insurance is currently generating about 0.05 per unit of risk. If you would invest  9.20  in Strategic Investments AS on October 5, 2024 and sell it today you would earn a total of  4.80  from holding Strategic Investments AS or generate 52.17% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Strategic Investments AS  vs.  Direct Line Insurance

Strategic Investments

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days Strategic Investments AS has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly fragile basic indicators, Strategic Investments may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Direct Line Insurance

Risk-Adjusted Performance

0 of 100

Good

Over the last 90 days Direct Line Insurance has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly fragile essential indicators, Direct Line reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Strategic Investments and Direct Line

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

The idea behind Strategic Investments AS and Direct Line Insurance 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 Commodity Directory module to find actively traded commodities issued by global exchanges.