Correlation Between Algonquin Power and Discover Financial
Can any of the company-specific risk be diversified away by investing in both Algonquin Power 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 Algonquin Power and Discover Financial into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Algonquin Power Utilities and Discover Financial Services, you can compare the effects of market volatilities on Algonquin Power 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 Algonquin Power with a short position of Discover Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Algonquin Power and Discover Financial.
Diversification Opportunities for Algonquin Power and Discover Financial
-0.6 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Algonquin and Discover is -0.6. Overlapping area represents the amount of risk that can be diversified away by holding Algonquin Power Utilities and Discover Financial Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Discover Financial and Algonquin Power 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 Algonquin Power Utilities 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 Algonquin Power i.e., Algonquin Power and Discover Financial go up and down completely randomly.
Pair Corralation between Algonquin Power and Discover Financial
Assuming the 90 days horizon Algonquin Power Utilities is expected to under-perform the Discover Financial. But the stock apears to be less risky and, when comparing its historical volatility, Algonquin Power Utilities is 1.26 times less risky than Discover Financial. The stock trades about -0.01 of its potential returns per unit of risk. The Discover Financial Services is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest 9,386 in Discover Financial Services on September 3, 2024 and sell it today you would earn a total of 7,804 from holding Discover Financial Services or generate 83.15% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Algonquin Power Utilities vs. Discover Financial Services
Performance |
| Timeline |
| Algonquin Power Utilities |
| Discover Financial |
Algonquin Power and Discover Financial Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Algonquin Power and Discover Financial
The main advantage of trading using opposite Algonquin Power and Discover Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Algonquin Power 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.| Algonquin Power vs. Treasury Wine Estates | Algonquin Power vs. X FAB Silicon Foundries | Algonquin Power vs. Silicon Motion Technology | Algonquin Power vs. CVW CLEANTECH INC |
| Discover Financial vs. Visa Inc | Discover Financial vs. Visa Inc | Discover Financial vs. American Express | Discover Financial vs. ORIX Corporation |
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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..
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