Correlation Between Discover Financial and Verizon Communications
Can any of the company-specific risk be diversified away by investing in both Discover Financial and Verizon Communications 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 Verizon Communications 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 Verizon Communications, you can compare the effects of market volatilities on Discover Financial and Verizon Communications 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 Verizon Communications. Check out your portfolio center. Please also check ongoing floating volatility patterns of Discover Financial and Verizon Communications.
Diversification Opportunities for Discover Financial and Verizon Communications
-0.33 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Discover and Verizon is -0.33. Overlapping area represents the amount of risk that can be diversified away by holding Discover Financial Services and Verizon Communications in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Verizon Communications 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 Verizon Communications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Verizon Communications has no effect on the direction of Discover Financial i.e., Discover Financial and Verizon Communications go up and down completely randomly.
Pair Corralation between Discover Financial and Verizon Communications
Assuming the 90 days trading horizon Discover Financial Services is expected to generate 1.63 times more return on investment than Verizon Communications. However, Discover Financial is 1.63 times more volatile than Verizon Communications. It trades about 0.07 of its potential returns per unit of risk. Verizon Communications is currently generating about 0.05 per unit of risk. If you would invest 11,036 in Discover Financial Services on September 2, 2024 and sell it today you would earn a total of 7,207 from holding Discover Financial Services or generate 65.3% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 97.61% |
| Values | Daily Returns |
Discover Financial Services vs. Verizon Communications
Performance |
| Timeline |
| Discover Financial |
| Verizon Communications |
Discover Financial and Verizon Communications Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Discover Financial and Verizon Communications
The main advantage of trading using opposite Discover Financial and Verizon Communications positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Discover Financial position performs unexpectedly, Verizon Communications 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 Verizon Communications will offset losses from the drop in Verizon Communications' long position.| Discover Financial vs. Uniper SE | Discover Financial vs. Mulberry Group PLC | Discover Financial vs. London Security Plc | Discover Financial vs. Triad Group PLC |
| Verizon Communications vs. Uniper SE | Verizon Communications vs. Mulberry Group PLC | Verizon Communications vs. London Security Plc | Verizon Communications vs. Triad Group PLC |
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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.
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