Correlation Between SBM Offshore and Direct Line

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

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

Diversification Opportunities for SBM Offshore and Direct Line

-0.85

Correlation Coefficient

SBM Offshore  Direct Line

Pay attention - limited upside

The 3 months correlation between SBM and Direct is -0.85. Overlapping area represents the amount of risk that can be diversified away by holding SBM Offshore NV 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 SBM Offshore 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 SBM Offshore NV 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 SBM Offshore i.e., SBM Offshore and Direct Line go up and down completely randomly.

Pair Corralation between SBM Offshore and Direct Line

If you would invest  1,265  in Direct Line Insurance on October 26, 2024 and sell it today you would earn a total of  111.00  from holding Direct Line Insurance or generate 8.77% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Significant
Accuracy	94.74%
Values	Daily Returns

SBM Offshore NV  vs.  Direct Line Insurance

SBM Offshore NV

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SBM Offshore NV has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong technical and fundamental indicators, SBM Offshore is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Direct Line Insurance

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Direct Line Insurance are ranked lower than 13 (%) 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.

Pair Trading with SBM Offshore and Direct Line

The main advantage of trading using opposite SBM Offshore and Direct Line positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SBM Offshore 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 SBM Offshore NV 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.

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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.