Correlation Between SMA Solar and Discover Financial
Can any of the company-specific risk be diversified away by investing in both SMA Solar 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 SMA Solar and Discover Financial into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between SMA Solar Technology and Discover Financial Services, you can compare the effects of market volatilities on SMA Solar 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 SMA Solar with a short position of Discover Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of SMA Solar and Discover Financial.
Diversification Opportunities for SMA Solar and Discover Financial
-0.41 | Correlation Coefficient |
Very good diversification
The 3 months correlation between SMA and Discover is -0.41. Overlapping area represents the amount of risk that can be diversified away by holding SMA Solar Technology and Discover Financial Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Discover Financial and SMA Solar 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 SMA Solar Technology 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 SMA Solar i.e., SMA Solar and Discover Financial go up and down completely randomly.
Pair Corralation between SMA Solar and Discover Financial
Assuming the 90 days trading horizon SMA Solar is expected to generate 2.87 times less return on investment than Discover Financial. In addition to that, SMA Solar is 1.67 times more volatile than Discover Financial Services. It trades about 0.06 of its total potential returns per unit of risk. Discover Financial Services is currently generating about 0.3 per unit of volatility. If you would invest 17,637 in Discover Financial Services on October 25, 2024 and sell it today you would earn a total of 1,956 from holding Discover Financial Services or generate 11.09% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 89.47% |
| Values | Daily Returns |
SMA Solar Technology vs. Discover Financial Services
Performance |
| Timeline |
| SMA Solar Technology |
| Discover Financial |
SMA Solar and Discover Financial Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with SMA Solar and Discover Financial
The main advantage of trading using opposite SMA Solar and Discover Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SMA Solar 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.| SMA Solar vs. Toyota Motor Corp | SMA Solar vs. SoftBank Group Corp | SMA Solar vs. OTP Bank Nyrt | SMA Solar vs. ONEOK Inc |
| Discover Financial vs. Toyota Motor Corp | Discover Financial vs. SoftBank Group Corp | Discover Financial vs. OTP Bank Nyrt | Discover Financial vs. ONEOK Inc |
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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.
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