Correlation Between Direct Line and Cedar Realty

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

Diversification Opportunities for Direct Line and Cedar Realty

0.28

Correlation Coefficient

Direct Line  Cedar Realty

Modest diversification

The 3 months correlation between Direct and Cedar is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding Direct Line Insurance and Cedar Realty Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cedar Realty Trust 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 Cedar Realty. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cedar Realty Trust has no effect on the direction of Direct Line i.e., Direct Line and Cedar Realty go up and down completely randomly.

Pair Corralation between Direct Line and Cedar Realty

Assuming the 90 days horizon Direct Line Insurance is expected to generate 1.57 times more return on investment than Cedar Realty. However, Direct Line is 1.57 times more volatile than Cedar Realty Trust. It trades about 0.14 of its potential returns per unit of risk. Cedar Realty Trust is currently generating about 0.04 per unit of risk. If you would invest  1,500  in Direct Line Insurance on May 4, 2025 and sell it today you would earn a total of  300.00  from holding Direct Line Insurance or generate 20.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	90.32%
Values	Daily Returns

Direct Line Insurance  vs.  Cedar Realty Trust

Direct Line Insurance

Risk-Adjusted Performance

OK

Over the last 90 days Direct Line Insurance has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly weak basic indicators, Direct Line showed solid returns over the last few months and may actually be approaching a breakup point.

Cedar Realty Trust

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Cedar Realty Trust are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Cedar Realty is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Direct Line and Cedar Realty

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

The idea behind Direct Line Insurance and Cedar Realty Trust 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.