Correlation Between Discover Financial and Baker Steel
Can any of the company-specific risk be diversified away by investing in both Discover Financial and Baker Steel 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 Baker Steel 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 Baker Steel Resources, you can compare the effects of market volatilities on Discover Financial and Baker Steel 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 Baker Steel. Check out your portfolio center. Please also check ongoing floating volatility patterns of Discover Financial and Baker Steel.
Diversification Opportunities for Discover Financial and Baker Steel
0.79 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Discover and Baker is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Discover Financial Services and Baker Steel Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Baker Steel Resources 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 Baker Steel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Baker Steel Resources has no effect on the direction of Discover Financial i.e., Discover Financial and Baker Steel go up and down completely randomly.
Pair Corralation between Discover Financial and Baker Steel
Assuming the 90 days trading horizon Discover Financial Services is expected to generate 0.58 times more return on investment than Baker Steel. However, Discover Financial Services is 1.72 times less risky than Baker Steel. It trades about 0.08 of its potential returns per unit of risk. Baker Steel Resources is currently generating about 0.03 per unit of risk. If you would invest 9,494 in Discover Financial Services on November 1, 2024 and sell it today you would earn a total of 10,966 from holding Discover Financial Services or generate 115.5% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 97.06% |
| Values | Daily Returns |
Discover Financial Services vs. Baker Steel Resources
Performance |
| Timeline |
| Discover Financial |
| Baker Steel Resources |
Discover Financial and Baker Steel Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Discover Financial and Baker Steel
The main advantage of trading using opposite Discover Financial and Baker Steel positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Discover Financial position performs unexpectedly, Baker Steel 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 Baker Steel will offset losses from the drop in Baker Steel's long position.| Discover Financial vs. Europa Metals | Discover Financial vs. Sovereign Metals | Discover Financial vs. Fresenius Medical Care | Discover Financial vs. Wheaton Precious Metals |
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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 Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.
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