Correlation Between Discover Financial and NMI Holdings
Can any of the company-specific risk be diversified away by investing in both Discover Financial and NMI Holdings 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 NMI Holdings 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 NMI Holdings, you can compare the effects of market volatilities on Discover Financial and NMI Holdings 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 NMI Holdings. Check out your portfolio center. Please also check ongoing floating volatility patterns of Discover Financial and NMI Holdings.
Diversification Opportunities for Discover Financial and NMI Holdings
-0.19 | Correlation Coefficient |
Good diversification
The 3 months correlation between Discover and NMI is -0.19. Overlapping area represents the amount of risk that can be diversified away by holding Discover Financial Services and NMI Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NMI Holdings 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 NMI Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NMI Holdings has no effect on the direction of Discover Financial i.e., Discover Financial and NMI Holdings go up and down completely randomly.
Pair Corralation between Discover Financial and NMI Holdings
Assuming the 90 days horizon Discover Financial Services is expected to generate 0.77 times more return on investment than NMI Holdings. However, Discover Financial Services is 1.31 times less risky than NMI Holdings. It trades about 0.13 of its potential returns per unit of risk. NMI Holdings is currently generating about -0.14 per unit of risk. If you would invest 16,612 in Discover Financial Services on October 12, 2024 and sell it today you would earn a total of 484.00 from holding Discover Financial Services or generate 2.91% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 94.44% |
| Values | Daily Returns |
Discover Financial Services vs. NMI Holdings
Performance |
| Timeline |
| Discover Financial |
| NMI Holdings |
Discover Financial and NMI Holdings Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Discover Financial and NMI Holdings
The main advantage of trading using opposite Discover Financial and NMI Holdings positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Discover Financial position performs unexpectedly, NMI Holdings 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 NMI Holdings will offset losses from the drop in NMI Holdings' long position.| Discover Financial vs. Platinum Investment Management | Discover Financial vs. Sims Metal Management | Discover Financial vs. Brockhaus Capital Management | Discover Financial vs. British American Tobacco |
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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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.
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