Correlation Between Automatic Data and Discover Financial
Can any of the company-specific risk be diversified away by investing in both Automatic Data and Discover Financial 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 Automatic Data and Discover Financial into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Automatic Data Processing and Discover Financial Services, you can compare the effects of market volatilities on Automatic Data and Discover Financial 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 Automatic Data with a short position of Discover Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Automatic Data and Discover Financial.
Diversification Opportunities for Automatic Data and Discover Financial
0.93 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Automatic and Discover is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Automatic Data Processing and Discover Financial Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Discover Financial and Automatic Data 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 Automatic Data Processing are associated (or correlated) with Discover Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Discover Financial has no effect on the direction of Automatic Data i.e., Automatic Data and Discover Financial go up and down completely randomly.
Pair Corralation between Automatic Data and Discover Financial
Assuming the 90 days trading horizon Automatic Data Processing is expected to generate 2.68 times more return on investment than Discover Financial. However, Automatic Data is 2.68 times more volatile than Discover Financial Services. It trades about 0.03 of its potential returns per unit of risk. Discover Financial Services is currently generating about 0.07 per unit of risk. If you would invest 24,161 in Automatic Data Processing on September 14, 2024 and sell it today you would earn a total of 5,851 from holding Automatic Data Processing or generate 24.22% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 96.15% |
| Values | Daily Returns |
Automatic Data Processing vs. Discover Financial Services
Performance |
| Timeline |
| Automatic Data Processing |
| Discover Financial |
Automatic Data and Discover Financial Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Automatic Data and Discover Financial
The main advantage of trading using opposite Automatic Data and Discover Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Automatic Data position performs unexpectedly, Discover Financial 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 Discover Financial will offset losses from the drop in Discover Financial's long position.| Automatic Data vs. Samsung Electronics Co | Automatic Data vs. Samsung Electronics Co | Automatic Data vs. Hyundai Motor | Automatic Data vs. Reliance Industries Ltd |
| Discover Financial vs. Dolly Varden Silver | Discover Financial vs. Ironveld Plc | Discover Financial vs. Baker Steel Resources | Discover Financial vs. Endeavour Mining Corp |
Check out your portfolio center.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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.
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