Correlation Between Discover Financial and Hormel Foods
Can any of the company-specific risk be diversified away by investing in both Discover Financial and Hormel Foods 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 Hormel Foods 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 Hormel Foods, you can compare the effects of market volatilities on Discover Financial and Hormel Foods 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 Hormel Foods. Check out your portfolio center. Please also check ongoing floating volatility patterns of Discover Financial and Hormel Foods.
Diversification Opportunities for Discover Financial and Hormel Foods
0.5 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Discover and Hormel is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Discover Financial Services and Hormel Foods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hormel Foods 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 Hormel Foods. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hormel Foods has no effect on the direction of Discover Financial i.e., Discover Financial and Hormel Foods go up and down completely randomly.
Pair Corralation between Discover Financial and Hormel Foods
Assuming the 90 days trading horizon Discover Financial Services is expected to generate 4.47 times more return on investment than Hormel Foods. However, Discover Financial is 4.47 times more volatile than Hormel Foods. It trades about 0.25 of its potential returns per unit of risk. Hormel Foods is currently generating about -0.29 per unit of risk. If you would invest 41,833 in Discover Financial Services on October 16, 2024 and sell it today you would earn a total of 10,687 from holding Discover Financial Services or generate 25.55% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Discover Financial Services vs. Hormel Foods
Performance |
| Timeline |
| Discover Financial |
| Hormel Foods |
Discover Financial and Hormel Foods Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Discover Financial and Hormel Foods
The main advantage of trading using opposite Discover Financial and Hormel Foods positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Discover Financial position performs unexpectedly, Hormel Foods 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 Hormel Foods will offset losses from the drop in Hormel Foods' long position.| Discover Financial vs. HDFC Bank Limited | Discover Financial vs. Jefferies Financial Group | Discover Financial vs. Annaly Capital Management, | Discover Financial vs. The Hartford Financial |
| Hormel Foods vs. Jefferies Financial Group | Hormel Foods vs. Sumitomo Mitsui Financial | Hormel Foods vs. Unity Software | Hormel Foods vs. Discover Financial Services |
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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.
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