Correlation Between Discover Financial and Alliance Data
Can any of the company-specific risk be diversified away by investing in both Discover Financial and Alliance Data 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 Discover Financial and Alliance Data into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Discover Financial Services and Alliance Data Systems, you can compare the effects of market volatilities on Discover Financial and Alliance Data 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 Discover Financial with a short position of Alliance Data. Check out your portfolio center. Please also check ongoing floating volatility patterns of Discover Financial and Alliance Data.
Diversification Opportunities for Discover Financial and Alliance Data
0.84 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Discover and Alliance is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Discover Financial Services and Alliance Data Systems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alliance Data Systems and Discover Financial 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 Discover Financial Services are associated (or correlated) with Alliance Data. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alliance Data Systems has no effect on the direction of Discover Financial i.e., Discover Financial and Alliance Data go up and down completely randomly.
Pair Corralation between Discover Financial and Alliance Data
Assuming the 90 days trading horizon Discover Financial Services is expected to generate 0.81 times more return on investment than Alliance Data. However, Discover Financial Services is 1.24 times less risky than Alliance Data. It trades about -0.09 of its potential returns per unit of risk. Alliance Data Systems is currently generating about -0.42 per unit of risk. If you would invest 17,617 in Discover Financial Services on October 14, 2024 and sell it today you would lose (442.00) from holding Discover Financial Services or give up 2.51% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 88.89% |
| Values | Daily Returns |
Discover Financial Services vs. Alliance Data Systems
Performance |
| Timeline |
| Discover Financial |
| Alliance Data Systems |
Discover Financial and Alliance Data Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Discover Financial and Alliance Data
The main advantage of trading using opposite Discover Financial and Alliance Data positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Discover Financial position performs unexpectedly, Alliance Data 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 Alliance Data will offset losses from the drop in Alliance Data's long position.| Discover Financial vs. National Beverage Corp | Discover Financial vs. Molson Coors Beverage | Discover Financial vs. Bloomsbury Publishing Plc | Discover Financial vs. European Metals Holdings |
| Alliance Data vs. Extra Space Storage | Alliance Data vs. Teradata Corp | Alliance Data vs. Fidelity National Information | Alliance Data vs. Discover Financial Services |
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 Equity Valuation module to check real value of public entities based on technical and fundamental data.
Other Complementary Tools
| Odds Of Bankruptcy Get analysis of equity chance of financial distress in the next 2 years | |
| Options Analysis Analyze and evaluate options and option chains as a potential hedge for your portfolios | |
| Commodity Channel Use Commodity Channel Index to analyze current equity momentum | |
| Equity Search Search for actively traded equities including funds and ETFs from over 30 global markets | |
| Bollinger Bands Use Bollinger Bands indicator to analyze target price for a given investing horizon |