Correlation Between Discover Financial and Ally Financial
Can any of the company-specific risk be diversified away by investing in both Discover Financial and Ally Financial 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 Ally Financial 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 Ally Financial, you can compare the effects of market volatilities on Discover Financial and Ally Financial 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 Ally Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Discover Financial and Ally Financial.
Diversification Opportunities for Discover Financial and Ally Financial
-0.09 | Correlation Coefficient |
Good diversification
The 3 months correlation between Discover and Ally is -0.09. Overlapping area represents the amount of risk that can be diversified away by holding Discover Financial Services and Ally Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ally Financial 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 Ally Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ally Financial has no effect on the direction of Discover Financial i.e., Discover Financial and Ally Financial go up and down completely randomly.
Pair Corralation between Discover Financial and Ally Financial
Considering the 90-day investment horizon Discover Financial Services is expected to generate 2.25 times more return on investment than Ally Financial. However, Discover Financial is 2.25 times more volatile than Ally Financial. It trades about 0.18 of its potential returns per unit of risk. Ally Financial is currently generating about 0.08 per unit of risk. If you would invest 14,545 in Discover Financial Services on August 23, 2024 and sell it today you would earn a total of 2,732 from holding Discover Financial Services or generate 18.78% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Discover Financial Services vs. Ally Financial
Performance |
| Timeline |
| Discover Financial |
| Ally Financial |
Discover Financial and Ally Financial Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Discover Financial and Ally Financial
The main advantage of trading using opposite Discover Financial and Ally Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Discover Financial position performs unexpectedly, Ally Financial 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 Ally Financial will offset losses from the drop in Ally Financial's long position.| Discover Financial vs. Small Cap Core | Discover Financial vs. Morningstar Unconstrained Allocation | Discover Financial vs. Mutual Of America | Discover Financial vs. Ep Emerging Markets |
| Ally Financial vs. Small Cap Core | Ally Financial vs. Morningstar Unconstrained Allocation | Ally Financial vs. Mutual Of America | Ally Financial vs. Ep Emerging Markets |
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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.
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