Correlation Between Discover Financial and HDFC Bank
Can any of the company-specific risk be diversified away by investing in both Discover Financial and HDFC Bank 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 HDFC Bank 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 HDFC Bank Limited, you can compare the effects of market volatilities on Discover Financial and HDFC Bank 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 HDFC Bank. Check out your portfolio center. Please also check ongoing floating volatility patterns of Discover Financial and HDFC Bank.
Diversification Opportunities for Discover Financial and HDFC Bank
0.65 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Discover and HDFC is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Discover Financial Services and HDFC Bank Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HDFC Bank Limited 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 HDFC Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HDFC Bank Limited has no effect on the direction of Discover Financial i.e., Discover Financial and HDFC Bank go up and down completely randomly.
Pair Corralation between Discover Financial and HDFC Bank
Assuming the 90 days trading horizon Discover Financial Services is expected to generate 0.85 times more return on investment than HDFC Bank. However, Discover Financial Services is 1.18 times less risky than HDFC Bank. It trades about 0.08 of its potential returns per unit of risk. HDFC Bank Limited is currently generating about 0.01 per unit of risk. If you would invest 24,544 in Discover Financial Services on October 14, 2024 and sell it today you would earn a total of 27,396 from holding Discover Financial Services or generate 111.62% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 99.8% |
| Values | Daily Returns |
Discover Financial Services vs. HDFC Bank Limited
Performance |
| Timeline |
| Discover Financial |
| HDFC Bank Limited |
Discover Financial and HDFC Bank Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Discover Financial and HDFC Bank
The main advantage of trading using opposite Discover Financial and HDFC Bank positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Discover Financial position performs unexpectedly, HDFC Bank 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 HDFC Bank will offset losses from the drop in HDFC Bank's long position.| Discover Financial vs. Visa Inc | Discover Financial vs. Mastercard Incorporated | Discover Financial vs. American Express | Discover Financial vs. PayPal Holdings |
| HDFC Bank vs. Discover Financial Services | HDFC Bank vs. Deutsche Bank Aktiengesellschaft | HDFC Bank vs. LPL Financial Holdings | HDFC Bank vs. The Hartford Financial |
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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.
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