Correlation Between Insurance Australia and Direct Line
Can any of the company-specific risk be diversified away by investing in both Insurance Australia 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 Insurance Australia and Direct Line into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Insurance Australia Group and Direct Line Insurance, you can compare the effects of market volatilities on Insurance Australia 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 Insurance Australia with a short position of Direct Line. Check out your portfolio center. Please also check ongoing floating volatility patterns of Insurance Australia and Direct Line.
Diversification Opportunities for Insurance Australia and Direct Line
0.11 | Correlation Coefficient |
Average diversification
The 3 months correlation between Insurance and Direct is 0.11. Overlapping area represents the amount of risk that can be diversified away by holding Insurance Australia Group 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 Insurance Australia 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 Insurance Australia Group 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 Insurance Australia i.e., Insurance Australia and Direct Line go up and down completely randomly.
Pair Corralation between Insurance Australia and Direct Line
Assuming the 90 days horizon Insurance Australia Group is expected to under-perform the Direct Line. In addition to that, Insurance Australia is 1.49 times more volatile than Direct Line Insurance. It trades about -0.04 of its total potential returns per unit of risk. Direct Line Insurance is currently generating about 0.2 per unit of volatility. If you would invest 276.00 in Direct Line Insurance on December 1, 2024 and sell it today you would earn a total of 55.00 from holding Direct Line Insurance or generate 19.93% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Insignificant |
Accuracy | 100.0% |
Values | Daily Returns |
Insurance Australia Group vs. Direct Line Insurance
Performance |
Timeline |
Insurance Australia |
Direct Line Insurance |
Insurance Australia and Direct Line Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Insurance Australia and Direct Line
The main advantage of trading using opposite Insurance Australia and Direct Line positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Insurance Australia 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.Insurance Australia vs. PLANT VEDA FOODS | Insurance Australia vs. MOVIE GAMES SA | Insurance Australia vs. COFCO Joycome Foods | Insurance Australia vs. Dalata Hotel Group |
Direct Line vs. Mitsui Chemicals | Direct Line vs. United Natural Foods | Direct Line vs. Nok Airlines PCL | Direct Line vs. PLANT VEDA FOODS |
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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.
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