Correlation Between Eltek and Direct Line

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

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

Diversification Opportunities for Eltek and Direct Line

-0.17

Correlation Coefficient

Eltek  Direct Line

Good diversification

The 3 months correlation between Eltek and Direct is -0.17. Overlapping area represents the amount of risk that can be diversified away by holding Eltek 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 Eltek 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 Eltek 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 Eltek i.e., Eltek and Direct Line go up and down completely randomly.

Pair Corralation between Eltek and Direct Line

Given the investment horizon of 90 days Eltek is expected to generate 1.49 times more return on investment than Direct Line. However, Eltek is 1.49 times more volatile than Direct Line Insurance. It trades about 0.07 of its potential returns per unit of risk. Direct Line Insurance is currently generating about 0.03 per unit of risk. If you would invest  398.00  in Eltek on September 13, 2024 and sell it today you would earn a total of  704.50  from holding Eltek or generate 177.01% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	94.55%
Values	Daily Returns

Eltek  vs.  Direct Line Insurance

Eltek

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Eltek are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent basic indicators, Eltek is not utilizing all of its potentials. The newest stock price mess, may contribute to short-term losses for the institutional investors.

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

Pair Trading with Eltek and Direct Line

The main advantage of trading using opposite Eltek and Direct Line positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Eltek 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 Eltek 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.