Correlation Between Discover Financial and Microsoft
Can any of the company-specific risk be diversified away by investing in both Discover Financial and Microsoft 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 Microsoft 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 Microsoft, you can compare the effects of market volatilities on Discover Financial and Microsoft 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 Microsoft. Check out your portfolio center. Please also check ongoing floating volatility patterns of Discover Financial and Microsoft.
Diversification Opportunities for Discover Financial and Microsoft
0.08 | Correlation Coefficient |
Significant diversification
The 3 months correlation between Discover and Microsoft is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding Discover Financial Services and Microsoft in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Microsoft 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 Microsoft. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Microsoft has no effect on the direction of Discover Financial i.e., Discover Financial and Microsoft go up and down completely randomly.
Pair Corralation between Discover Financial and Microsoft
Assuming the 90 days trading horizon Discover Financial Services is expected to generate 1.44 times more return on investment than Microsoft. However, Discover Financial is 1.44 times more volatile than Microsoft. It trades about 0.08 of its potential returns per unit of risk. Microsoft is currently generating about 0.1 per unit of risk. If you would invest 28,332 in Discover Financial Services on October 27, 2024 and sell it today you would earn a total of 31,392 from holding Discover Financial Services or generate 110.8% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 98.79% |
| Values | Daily Returns |
Discover Financial Services vs. Microsoft
Performance |
| Timeline |
| Discover Financial |
| Microsoft |
Discover Financial and Microsoft Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Discover Financial and Microsoft
The main advantage of trading using opposite Discover Financial and Microsoft positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Discover Financial position performs unexpectedly, Microsoft 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 Microsoft will offset losses from the drop in Microsoft's long position.| Discover Financial vs. Metalrgica Riosulense SA | Discover Financial vs. STAG Industrial, | Discover Financial vs. Nordon Indstrias Metalrgicas | Discover Financial vs. STMicroelectronics NV |
| Microsoft vs. The Trade Desk | Microsoft vs. Metalurgica Gerdau SA | Microsoft vs. salesforce inc | Microsoft vs. PENN Entertainment, |
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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.
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