Correlation Between Direct Line and ValOre Metals

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

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

Diversification Opportunities for Direct Line and ValOre Metals

-0.02

Correlation Coefficient

Direct Line  ValOre Metals

Good diversification

The 3 months correlation between Direct and ValOre is -0.02. Overlapping area represents the amount of risk that can be diversified away by holding Direct Line Insurance and ValOre Metals Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ValOre Metals Corp and Direct Line 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 Direct Line Insurance are associated (or correlated) with ValOre Metals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ValOre Metals Corp has no effect on the direction of Direct Line i.e., Direct Line and ValOre Metals go up and down completely randomly.

Pair Corralation between Direct Line and ValOre Metals

Assuming the 90 days trading horizon Direct Line is expected to generate 2.73 times less return on investment than ValOre Metals. But when comparing it to its historical volatility, Direct Line Insurance is 3.18 times less risky than ValOre Metals. It trades about 0.14 of its potential returns per unit of risk. ValOre Metals Corp is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  3.85  in ValOre Metals Corp on September 28, 2024 and sell it today you would earn a total of  2.65  from holding ValOre Metals Corp or generate 68.83% return on investment over 90 days.

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

Direct Line Insurance  vs.  ValOre Metals Corp

Direct Line Insurance

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Direct Line Insurance are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile essential indicators, Direct Line reported solid returns over the last few months and may actually be approaching a breakup point.

ValOre Metals Corp

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in ValOre Metals Corp are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, ValOre Metals reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Direct Line and ValOre Metals

The main advantage of trading using opposite Direct Line and ValOre Metals positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Direct Line position performs unexpectedly, ValOre Metals 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 ValOre Metals will offset losses from the drop in ValOre Metals' long position.

The idea behind Direct Line Insurance and ValOre Metals Corp 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.