Correlation Between Cardinal Health and Direct Line

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

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

Diversification Opportunities for Cardinal Health and Direct Line

-0.02

Correlation Coefficient

Cardinal Health  Direct Line

Good diversification

The 3 months correlation between Cardinal and Direct is -0.02. Overlapping area represents the amount of risk that can be diversified away by holding Cardinal Health 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 Cardinal Health 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 Cardinal Health 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 Cardinal Health i.e., Cardinal Health and Direct Line go up and down completely randomly.

Pair Corralation between Cardinal Health and Direct Line

Assuming the 90 days horizon Cardinal Health is expected to generate 2.07 times more return on investment than Direct Line. However, Cardinal Health is 2.07 times more volatile than Direct Line Insurance. It trades about 0.2 of its potential returns per unit of risk. Direct Line Insurance is currently generating about 0.32 per unit of risk. If you would invest  11,305  in Cardinal Health on April 21, 2025 and sell it today you would earn a total of  2,385  from holding Cardinal Health or generate 21.1% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	79.69%
Values	Daily Returns

Cardinal Health  vs.  Direct Line Insurance

Cardinal Health

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Cardinal Health are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Cardinal Health reported solid returns over the last few months and may actually be approaching a breakup point.

Direct Line Insurance

Risk-Adjusted Performance

Solid

Over the last 90 days Direct Line Insurance has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly weak essential indicators, Direct Line reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Cardinal Health and Direct Line

The main advantage of trading using opposite Cardinal Health and Direct Line positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cardinal Health 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 Cardinal Health 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..