Correlation Between Discover Financial and American Express
Can any of the company-specific risk be diversified away by investing in both Discover Financial and American Express 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 Discover Financial and American Express into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Discover Financial Services and American Express, you can compare the effects of market volatilities on Discover Financial and American Express 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 Discover Financial with a short position of American Express. Check out your portfolio center. Please also check ongoing floating volatility patterns of Discover Financial and American Express.
Diversification Opportunities for Discover Financial and American Express
0.66 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Discover and American is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Discover Financial Services and American Express in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Express and Discover Financial 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 Discover Financial Services are associated (or correlated) with American Express. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Express has no effect on the direction of Discover Financial i.e., Discover Financial and American Express go up and down completely randomly.
Pair Corralation between Discover Financial and American Express
Assuming the 90 days trading horizon Discover Financial Services is expected to generate 1.35 times more return on investment than American Express. However, Discover Financial is 1.35 times more volatile than American Express. It trades about 0.13 of its potential returns per unit of risk. American Express is currently generating about 0.15 per unit of risk. If you would invest 35,375 in Discover Financial Services on October 12, 2024 and sell it today you would earn a total of 6,458 from holding Discover Financial Services or generate 18.26% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Discover Financial Services vs. American Express
Performance |
| Timeline |
| Discover Financial |
| American Express |
Discover Financial and American Express Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Discover Financial and American Express
The main advantage of trading using opposite Discover Financial and American Express positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Discover Financial position performs unexpectedly, American Express 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 American Express will offset losses from the drop in American Express' long position.| Discover Financial vs. Visa Inc | Discover Financial vs. Mastercard Incorporated | Discover Financial vs. American Express | Discover Financial vs. PayPal Holdings |
| American Express vs. Darden Restaurants, | American Express vs. New Oriental Education | American Express vs. Check Point Software | American Express vs. salesforce inc |
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.
Other Complementary Tools
| Pattern Recognition Use different Pattern Recognition models to time the market across multiple global exchanges | |
| Correlation Analysis Reduce portfolio risk simply by holding instruments which are not perfectly correlated | |
| Share Portfolio Track or share privately all of your investments from the convenience of any device | |
| Portfolio Holdings Check your current holdings and cash postion to detemine if your portfolio needs rebalancing | |
| Portfolio Volatility Check portfolio volatility and analyze historical return density to properly model market risk |