Correlation Between Capital One and Discover Financial
Can any of the company-specific risk be diversified away by investing in both Capital One 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 Capital One and Discover Financial into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Capital One Financial and Discover Financial Services, you can compare the effects of market volatilities on Capital One 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 Capital One with a short position of Discover Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Capital One and Discover Financial.
Diversification Opportunities for Capital One and Discover Financial
0.75 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Capital and Discover is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Capital One Financial and Discover Financial Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Discover Financial and Capital One 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 Capital One Financial 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 Capital One i.e., Capital One and Discover Financial go up and down completely randomly.
Pair Corralation between Capital One and Discover Financial
Assuming the 90 days trading horizon Capital One Financial is expected to generate 1.05 times more return on investment than Discover Financial. However, Capital One is 1.05 times more volatile than Discover Financial Services. It trades about 0.14 of its potential returns per unit of risk. Discover Financial Services is currently generating about 0.09 per unit of risk. If you would invest 37,139 in Capital One Financial on October 12, 2024 and sell it today you would earn a total of 19,141 from holding Capital One Financial or generate 51.54% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Capital One Financial vs. Discover Financial Services
Performance |
| Timeline |
| Capital One Financial |
| Discover Financial |
Capital One and Discover Financial Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Capital One and Discover Financial
The main advantage of trading using opposite Capital One and Discover Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Capital One 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.| Capital One vs. Patria Investments Limited | Capital One vs. Charter Communications | Capital One vs. Metalrgica Riosulense SA | Capital One vs. MAHLE Metal Leve |
| Discover Financial vs. Visa Inc | Discover Financial vs. Mastercard Incorporated | Discover Financial vs. American Express | Discover Financial vs. PayPal Holdings |
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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.
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