Correlation Between IDI Insurance and Direct Capital

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

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

Diversification Opportunities for IDI Insurance and Direct Capital

-0.81

Correlation Coefficient

IDI Insurance  Direct Capital

Pay attention - limited upside

The 3 months correlation between IDI and Direct is -0.81. Overlapping area represents the amount of risk that can be diversified away by holding IDI Insurance and Direct Capital Investments in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Direct Capital Inves and IDI Insurance 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 IDI Insurance are associated (or correlated) with Direct Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Direct Capital Inves has no effect on the direction of IDI Insurance i.e., IDI Insurance and Direct Capital go up and down completely randomly.

Pair Corralation between IDI Insurance and Direct Capital

Assuming the 90 days trading horizon IDI Insurance is expected to generate 13.53 times less return on investment than Direct Capital. But when comparing it to its historical volatility, IDI Insurance is 22.3 times less risky than Direct Capital. It trades about 0.1 of its potential returns per unit of risk. Direct Capital Investments is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  6,200  in Direct Capital Investments on September 5, 2024 and sell it today you would earn a total of  86,240  from holding Direct Capital Investments or generate 1390.97% return on investment over 90 days.

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

IDI Insurance  vs.  Direct Capital Investments

IDI Insurance

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in IDI Insurance are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, IDI Insurance sustained solid returns over the last few months and may actually be approaching a breakup point.

Direct Capital Inves

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Direct Capital Investments has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's forward indicators remain somewhat strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with IDI Insurance and Direct Capital

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

The idea behind IDI Insurance and Direct Capital Investments 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 CEOs Directory module to screen CEOs from public companies around the world.