Correlation Between Discover Financial and Merchants Bancorp
Can any of the company-specific risk be diversified away by investing in both Discover Financial and Merchants Bancorp 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 Merchants Bancorp 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 Merchants Bancorp, you can compare the effects of market volatilities on Discover Financial and Merchants Bancorp 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 Merchants Bancorp. Check out your portfolio center. Please also check ongoing floating volatility patterns of Discover Financial and Merchants Bancorp.
Diversification Opportunities for Discover Financial and Merchants Bancorp
0.2 | Correlation Coefficient |
Modest diversification
The 3 months correlation between Discover and Merchants is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding Discover Financial Services and Merchants Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Merchants Bancorp 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 Merchants Bancorp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Merchants Bancorp has no effect on the direction of Discover Financial i.e., Discover Financial and Merchants Bancorp go up and down completely randomly.
Pair Corralation between Discover Financial and Merchants Bancorp
Considering the 90-day investment horizon Discover Financial is expected to generate 1.07 times less return on investment than Merchants Bancorp. But when comparing it to its historical volatility, Discover Financial Services is 1.17 times less risky than Merchants Bancorp. It trades about 0.38 of its potential returns per unit of risk. Merchants Bancorp is currently generating about 0.35 of returns per unit of risk over similar time horizon. If you would invest 3,600 in Merchants Bancorp on November 3, 2024 and sell it today you would earn a total of 593.00 from holding Merchants Bancorp or generate 16.47% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Discover Financial Services vs. Merchants Bancorp
Performance |
| Timeline |
| Discover Financial |
| Merchants Bancorp |
Discover Financial and Merchants Bancorp Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Discover Financial and Merchants Bancorp
The main advantage of trading using opposite Discover Financial and Merchants Bancorp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Discover Financial position performs unexpectedly, Merchants Bancorp 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 Merchants Bancorp will offset losses from the drop in Merchants Bancorp'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 |
| Merchants Bancorp vs. RBB Bancorp | Merchants Bancorp vs. Midland States Bancorp | Merchants Bancorp vs. SmartFinancial, | Merchants Bancorp vs. Business First Bancshares |
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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.
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