Correlation Between Discover Financial and Direct Line
Can any of the company-specific risk be diversified away by investing in both Discover Financial and Direct Line 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 Direct Line 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 Direct Line Insurance, you can compare the effects of market volatilities on Discover Financial and Direct Line 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 Direct Line. Check out your portfolio center. Please also check ongoing floating volatility patterns of Discover Financial and Direct Line.
Diversification Opportunities for Discover Financial and Direct Line
0.61 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Discover and Direct is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Discover Financial Services and Direct Line Insurance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Direct Line Insurance 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 Direct Line. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Direct Line Insurance has no effect on the direction of Discover Financial i.e., Discover Financial and Direct Line go up and down completely randomly.
Pair Corralation between Discover Financial and Direct Line
Assuming the 90 days horizon Discover Financial Services is expected to generate 0.76 times more return on investment than Direct Line. However, Discover Financial Services is 1.31 times less risky than Direct Line. It trades about 0.17 of its potential returns per unit of risk. Direct Line Insurance is currently generating about 0.1 per unit of risk. If you would invest 12,416 in Discover Financial Services on November 2, 2024 and sell it today you would earn a total of 6,620 from holding Discover Financial Services or generate 53.32% 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. Direct Line Insurance
Performance |
| Timeline |
| Discover Financial |
| Direct Line Insurance |
Discover Financial and Direct Line Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Discover Financial and Direct Line
The main advantage of trading using opposite Discover Financial and Direct Line positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Discover Financial position performs unexpectedly, Direct Line 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 Direct Line will offset losses from the drop in Direct Line's long position.| Discover Financial vs. China Eastern Airlines | Discover Financial vs. SINGAPORE AIRLINES | Discover Financial vs. JAPAN AIRLINES | Discover Financial vs. PRECISION DRILLING P |
| Direct Line vs. Alibaba Health Information | Direct Line vs. Information Services International Dentsu | Direct Line vs. ATOSS SOFTWARE | Direct Line vs. Datadog |
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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.
Other Complementary Tools
| Portfolio Anywhere Track or share privately all of your investments from the convenience of any device | |
| Portfolio File Import Quickly import all of your third-party portfolios from your local drive in csv format | |
| Bond Analysis Evaluate and analyze corporate bonds as a potential investment for your portfolios. | |
| Headlines Timeline Stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity | |
| Portfolio Manager State of the art Portfolio Manager to monitor and improve performance of your invested capital |