Correlation Between Intermediate Capital and Direct Line

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

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

Diversification Opportunities for Intermediate Capital and Direct Line

0.44

Correlation Coefficient

Intermediate Capital  Direct Line

Very weak diversification

The 3 months correlation between Intermediate and Direct is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding Intermediate Capital Group 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 Intermediate Capital 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 Intermediate Capital Group 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 Intermediate Capital i.e., Intermediate Capital and Direct Line go up and down completely randomly.

Pair Corralation between Intermediate Capital and Direct Line

Assuming the 90 days trading horizon Intermediate Capital Group is expected to generate 2.97 times more return on investment than Direct Line. However, Intermediate Capital is 2.97 times more volatile than Direct Line Insurance. It trades about 0.18 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  1,914  in Intermediate Capital Group on April 20, 2025 and sell it today you would earn a total of  506.00  from holding Intermediate Capital Group or generate 26.44% return on investment over 90 days.

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

Intermediate Capital Group  vs.  Direct Line Insurance

Intermediate Capital

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Intermediate Capital Group are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Intermediate Capital unveiled 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 fragile essential indicators, Direct Line reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Intermediate Capital and Direct Line

The main advantage of trading using opposite Intermediate Capital and Direct Line positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Intermediate Capital 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 Intermediate Capital Group 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.