Correlation Between Eaton Corp and Discover Financial
Can any of the company-specific risk be diversified away by investing in both Eaton Corp 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 Eaton Corp and Discover Financial into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Eaton Corp PLC and Discover Financial Services, you can compare the effects of market volatilities on Eaton Corp 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 Eaton Corp with a short position of Discover Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Eaton Corp and Discover Financial.
Diversification Opportunities for Eaton Corp and Discover Financial
0.87 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Eaton and Discover is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Eaton Corp PLC and Discover Financial Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Discover Financial and Eaton Corp 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 Eaton Corp PLC 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 Eaton Corp i.e., Eaton Corp and Discover Financial go up and down completely randomly.
Pair Corralation between Eaton Corp and Discover Financial
Assuming the 90 days trading horizon Eaton Corp is expected to generate 1.17 times less return on investment than Discover Financial. But when comparing it to its historical volatility, Eaton Corp PLC is 1.7 times less risky than Discover Financial. It trades about 0.24 of its potential returns per unit of risk. Discover Financial Services is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest 13,574 in Discover Financial Services on September 4, 2024 and sell it today you would earn a total of 4,440 from holding Discover Financial Services or generate 32.71% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 98.46% |
| Values | Daily Returns |
Eaton Corp PLC vs. Discover Financial Services
Performance |
| Timeline |
| Eaton Corp PLC |
| Discover Financial |
Eaton Corp and Discover Financial Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Eaton Corp and Discover Financial
The main advantage of trading using opposite Eaton Corp and Discover Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Eaton Corp 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.| Eaton Corp vs. Discover Financial Services | Eaton Corp vs. Ameriprise Financial | Eaton Corp vs. CompuGroup Medical AG | Eaton Corp vs. Sydbank |
| Discover Financial vs. Lendinvest PLC | Discover Financial vs. Induction Healthcare Group | Discover Financial vs. Cembra Money Bank | Discover Financial vs. Cardinal Health |
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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.
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