Correlation Between Air New and Discover Financial
Can any of the company-specific risk be diversified away by investing in both Air New 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 Air New and Discover Financial into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Air New Zealand and Discover Financial Services, you can compare the effects of market volatilities on Air New 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 Air New with a short position of Discover Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Air New and Discover Financial.
Diversification Opportunities for Air New and Discover Financial
0.39 | Correlation Coefficient |
Weak diversification
The 3 months correlation between Air and Discover is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding Air New Zealand and Discover Financial Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Discover Financial and Air New 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 Air New Zealand 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 Air New i.e., Air New and Discover Financial go up and down completely randomly.
Pair Corralation between Air New and Discover Financial
Assuming the 90 days trading horizon Air New Zealand is expected to under-perform the Discover Financial. But the stock apears to be less risky and, when comparing its historical volatility, Air New Zealand is 1.48 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 0.07 of returns per unit of risk over similar time horizon. If you would invest 8,589 in Discover Financial Services on September 13, 2024 and sell it today you would earn a total of 8,019 from holding Discover Financial Services or generate 93.36% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Air New Zealand vs. Discover Financial Services
Performance |
| Timeline |
| Air New Zealand |
| Discover Financial |
Air New and Discover Financial Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Air New and Discover Financial
The main advantage of trading using opposite Air New and Discover Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Air New 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.The idea behind Air New Zealand and Discover Financial Services pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.| Discover Financial vs. Pentair plc | Discover Financial vs. HF SINCLAIR P | Discover Financial vs. Air New Zealand | Discover Financial vs. WIZZ AIR HLDGUNSPADR4 |
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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