Correlation Between Talanx AG and Direct Line

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

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

Diversification Opportunities for Talanx AG and Direct Line

0.16

Correlation Coefficient

Talanx AG  Direct Line

Average diversification

The 3 months correlation between Talanx and Direct is 0.16. Overlapping area represents the amount of risk that can be diversified away by holding Talanx AG 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 Talanx AG 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 Talanx AG 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 Talanx AG i.e., Talanx AG and Direct Line go up and down completely randomly.

Pair Corralation between Talanx AG and Direct Line

Assuming the 90 days horizon Talanx AG is expected to generate 1.39 times more return on investment than Direct Line. However, Talanx AG is 1.39 times more volatile than Direct Line Insurance. It trades about 0.22 of its potential returns per unit of risk. Direct Line Insurance is currently generating about 0.18 per unit of risk. If you would invest  8,080  in Talanx AG on December 21, 2024 and sell it today you would earn a total of  1,485  from holding Talanx AG or generate 18.38% return on investment over 90 days.

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

Talanx AG  vs.  Direct Line Insurance

Talanx AG

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Talanx AG are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Talanx AG reported solid returns over the last few months and may actually be approaching a breakup point.

Direct Line Insurance

Risk-Adjusted Performance

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. Despite nearly unsteady essential indicators, Direct Line may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Talanx AG and Direct Line

The main advantage of trading using opposite Talanx AG and Direct Line positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Talanx AG 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 Talanx AG 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.