Correlation Between Direct Line and PT Bank

Can any of the company-specific risk be diversified away by investing in both Direct Line and PT Bank 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 PT Bank 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 PT Bank CIMB, you can compare the effects of market volatilities on Direct Line and PT Bank 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 PT Bank. Check out your portfolio center. Please also check ongoing floating volatility patterns of Direct Line and PT Bank.

Diversification Opportunities for Direct Line and PT Bank

0.07

Correlation Coefficient

Direct Line  PT Bank

Significant diversification

The 3 months correlation between Direct and NKX is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding Direct Line Insurance and PT Bank CIMB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PT Bank CIMB 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 PT Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PT Bank CIMB has no effect on the direction of Direct Line i.e., Direct Line and PT Bank go up and down completely randomly.

Pair Corralation between Direct Line and PT Bank

If you would invest  318.00  in Direct Line Insurance on April 20, 2025 and sell it today you would earn a total of  41.00  from holding Direct Line Insurance or generate 12.89% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	80.95%
Values	Daily Returns

Direct Line Insurance  vs.  PT Bank CIMB

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 fragile essential indicators, Direct Line reported solid returns over the last few months and may actually be approaching a breakup point.

PT Bank CIMB

Risk-Adjusted Performance

Very Weak

Over the last 90 days PT Bank CIMB has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, PT Bank is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Direct Line and PT Bank

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

The idea behind Direct Line Insurance and PT Bank CIMB 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.