Correlation Between Sable Offshore and Direct Line

Can any of the company-specific risk be diversified away by investing in both Sable 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 Sable 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 Sable Offshore Corp and Direct Line Insurance, you can compare the effects of market volatilities on Sable 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 Sable Offshore with a short position of Direct Line. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sable Offshore and Direct Line.

Diversification Opportunities for Sable Offshore and Direct Line

-0.34

Correlation Coefficient

Sable Offshore  Direct Line

Very good diversification

The 3 months correlation between Sable and Direct is -0.34. Overlapping area represents the amount of risk that can be diversified away by holding Sable Offshore Corp 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 Sable 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 Sable Offshore Corp 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 Sable Offshore i.e., Sable Offshore and Direct Line go up and down completely randomly.

Pair Corralation between Sable Offshore and Direct Line

Considering the 90-day investment horizon Sable Offshore Corp is expected to under-perform the Direct Line. But the stock apears to be less risky and, when comparing its historical volatility, Sable Offshore Corp is 1.27 times less risky than Direct Line. The stock trades about -0.03 of its potential returns per unit of risk. The Direct Line Insurance is currently generating about 0.35 of returns per unit of risk over similar time horizon. If you would invest  799.00  in Direct Line Insurance on September 27, 2024 and sell it today you would earn a total of  466.00  from holding Direct Line Insurance or generate 58.32% return on investment over 90 days.

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

Sable Offshore Corp  vs.  Direct Line Insurance

Sable Offshore Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sable Offshore Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Sable Offshore is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Direct Line Insurance

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Direct Line Insurance are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile basic indicators, Direct Line showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Sable Offshore and Direct Line

The main advantage of trading using opposite Sable Offshore and Direct Line positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Sable 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 Sable Offshore Corp 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.