Correlation Between Discover Financial and 1st Federal
Can any of the company-specific risk be diversified away by investing in both Discover Financial and 1st Federal 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 1st Federal 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 1st Federal Savings, you can compare the effects of market volatilities on Discover Financial and 1st Federal 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 1st Federal. Check out your portfolio center. Please also check ongoing floating volatility patterns of Discover Financial and 1st Federal.
Diversification Opportunities for Discover Financial and 1st Federal
0.6 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Discover and 1st is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Discover Financial Services and 1st Federal Savings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on 1st Federal Savings 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 1st Federal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of 1st Federal Savings has no effect on the direction of Discover Financial i.e., Discover Financial and 1st Federal go up and down completely randomly.
Pair Corralation between Discover Financial and 1st Federal
Considering the 90-day investment horizon Discover Financial Services is expected to generate 1.56 times more return on investment than 1st Federal. However, Discover Financial is 1.56 times more volatile than 1st Federal Savings. It trades about 0.35 of its potential returns per unit of risk. 1st Federal Savings is currently generating about 0.03 per unit of risk. If you would invest 17,606 in Discover Financial Services on November 4, 2024 and sell it today you would earn a total of 2,503 from holding Discover Financial Services or generate 14.22% 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. 1st Federal Savings
Performance |
| Timeline |
| Discover Financial |
| 1st Federal Savings |
Discover Financial and 1st Federal Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Discover Financial and 1st Federal
The main advantage of trading using opposite Discover Financial and 1st Federal positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Discover Financial position performs unexpectedly, 1st Federal 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 1st Federal will offset losses from the drop in 1st Federal's long position.| Discover Financial vs. Ally Financial | Discover Financial vs. Synchrony Financial | Discover Financial vs. Western Union Co | Discover Financial vs. Bread Financial Holdings |
| 1st Federal vs. Chester Mining | 1st Federal vs. Playtika Holding Corp | 1st Federal vs. Evolution Gaming Group | 1st Federal vs. Motorsport Gaming Us |
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 Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.
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