Correlation Between American Express and Discover Financial
Can any of the company-specific risk be diversified away by investing in both American Express 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 American Express and Discover Financial into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between American Express and Discover Financial Services, you can compare the effects of market volatilities on American Express 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 American Express with a short position of Discover Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Express and Discover Financial.
Diversification Opportunities for American Express and Discover Financial
0.59 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between American and Discover is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding American Express and Discover Financial Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Discover Financial and American Express 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 American Express 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 American Express i.e., American Express and Discover Financial go up and down completely randomly.
Pair Corralation between American Express and Discover Financial
Assuming the 90 days trading horizon American Express is expected to under-perform the Discover Financial. But the stock apears to be less risky and, when comparing its historical volatility, American Express is 1.52 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 0.12 of returns per unit of risk over similar time horizon. If you would invest 16,535 in Discover Financial Services on November 30, 2024 and sell it today you would earn a total of 1,595 from holding Discover Financial Services or generate 9.65% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 97.67% |
| Values | Daily Returns |
American Express vs. Discover Financial Services
Performance |
| Timeline |
| American Express |
| Discover Financial |
American Express and Discover Financial Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with American Express and Discover Financial
The main advantage of trading using opposite American Express and Discover Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Express 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.| American Express vs. Cleanaway Waste Management | American Express vs. Brockhaus Capital Management | American Express vs. UNITED UTILITIES GP | American Express vs. Jupiter Fund Management |
| Discover Financial vs. SLIGRO FOOD GROUP | Discover Financial vs. Air Lease | Discover Financial vs. Austevoll Seafood ASA | Discover Financial vs. US Foods Holding |
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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.
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