Correlation Between Discover Financial and BNY Mellon
Can any of the company-specific risk be diversified away by investing in both Discover Financial and BNY Mellon 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 BNY Mellon 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 BNY Mellon Strategic, you can compare the effects of market volatilities on Discover Financial and BNY Mellon 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 BNY Mellon. Check out your portfolio center. Please also check ongoing floating volatility patterns of Discover Financial and BNY Mellon.
Diversification Opportunities for Discover Financial and BNY Mellon
-0.44 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Discover and BNY is -0.44. Overlapping area represents the amount of risk that can be diversified away by holding Discover Financial Services and BNY Mellon Strategic in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BNY Mellon Strategic 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 BNY Mellon. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BNY Mellon Strategic has no effect on the direction of Discover Financial i.e., Discover Financial and BNY Mellon go up and down completely randomly.
Pair Corralation between Discover Financial and BNY Mellon
Considering the 90-day investment horizon Discover Financial Services is expected to generate 1.75 times more return on investment than BNY Mellon. However, Discover Financial is 1.75 times more volatile than BNY Mellon Strategic. It trades about 0.06 of its potential returns per unit of risk. BNY Mellon Strategic is currently generating about -0.23 per unit of risk. If you would invest 17,676 in Discover Financial Services on October 9, 2024 and sell it today you would earn a total of 245.00 from holding Discover Financial Services or generate 1.39% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 95.0% |
| Values | Daily Returns |
Discover Financial Services vs. BNY Mellon Strategic
Performance |
| Timeline |
| Discover Financial |
| BNY Mellon Strategic |
Discover Financial and BNY Mellon Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Discover Financial and BNY Mellon
The main advantage of trading using opposite Discover Financial and BNY Mellon positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Discover Financial position performs unexpectedly, BNY Mellon 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 BNY Mellon will offset losses from the drop in BNY Mellon'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 |
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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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.
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