Correlation Between Discover Financial and Naked Wines
Can any of the company-specific risk be diversified away by investing in both Discover Financial and Naked Wines 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 Naked Wines 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 Naked Wines plc, you can compare the effects of market volatilities on Discover Financial and Naked Wines 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 Naked Wines. Check out your portfolio center. Please also check ongoing floating volatility patterns of Discover Financial and Naked Wines.
Diversification Opportunities for Discover Financial and Naked Wines
-0.2 | Correlation Coefficient |
Good diversification
The 3 months correlation between Discover and Naked is -0.2. Overlapping area represents the amount of risk that can be diversified away by holding Discover Financial Services and Naked Wines plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Naked Wines plc 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 Naked Wines. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Naked Wines plc has no effect on the direction of Discover Financial i.e., Discover Financial and Naked Wines go up and down completely randomly.
Pair Corralation between Discover Financial and Naked Wines
Assuming the 90 days trading horizon Discover Financial Services is expected to generate 0.55 times more return on investment than Naked Wines. However, Discover Financial Services is 1.82 times less risky than Naked Wines. It trades about -0.02 of its potential returns per unit of risk. Naked Wines plc is currently generating about -0.06 per unit of risk. If you would invest 17,924 in Discover Financial Services on September 13, 2024 and sell it today you would lose (144.00) from holding Discover Financial Services or give up 0.8% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 95.65% |
| Values | Daily Returns |
Discover Financial Services vs. Naked Wines plc
Performance |
| Timeline |
| Discover Financial |
| Naked Wines plc |
Discover Financial and Naked Wines Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Discover Financial and Naked Wines
The main advantage of trading using opposite Discover Financial and Naked Wines positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Discover Financial position performs unexpectedly, Naked Wines 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 Naked Wines will offset losses from the drop in Naked Wines' long position.| Discover Financial vs. Dolly Varden Silver | Discover Financial vs. Ironveld Plc | Discover Financial vs. Baker Steel Resources | Discover Financial vs. Endeavour Mining Corp |
| Naked Wines vs. Ondine Biomedical | Naked Wines vs. Europa Metals | Naked Wines vs. Revolution Beauty Group | Naked Wines vs. Moonpig 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.
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