Correlation Between Discover Financial and NorthWestern
Can any of the company-specific risk be diversified away by investing in both Discover Financial and NorthWestern 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 NorthWestern 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 NorthWestern, you can compare the effects of market volatilities on Discover Financial and NorthWestern 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 NorthWestern. Check out your portfolio center. Please also check ongoing floating volatility patterns of Discover Financial and NorthWestern.
Diversification Opportunities for Discover Financial and NorthWestern
0.07 | Correlation Coefficient |
Significant diversification
The 3 months correlation between Discover and NorthWestern is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding Discover Financial Services and NorthWestern in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NorthWestern 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 NorthWestern. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NorthWestern has no effect on the direction of Discover Financial i.e., Discover Financial and NorthWestern go up and down completely randomly.
Pair Corralation between Discover Financial and NorthWestern
Considering the 90-day investment horizon Discover Financial Services is expected to generate 3.69 times more return on investment than NorthWestern. However, Discover Financial is 3.69 times more volatile than NorthWestern. It trades about 0.18 of its potential returns per unit of risk. NorthWestern is currently generating about 0.1 per unit of risk. If you would invest 15,226 in Discover Financial Services on August 27, 2024 and sell it today you would earn a total of 2,703 from holding Discover Financial Services or generate 17.75% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Discover Financial Services vs. NorthWestern
Performance |
| Timeline |
| Discover Financial |
| NorthWestern |
Discover Financial and NorthWestern Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Discover Financial and NorthWestern
The main advantage of trading using opposite Discover Financial and NorthWestern positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Discover Financial position performs unexpectedly, NorthWestern 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 NorthWestern will offset losses from the drop in NorthWestern'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 |
| NorthWestern vs. Allete Inc | NorthWestern vs. Black Hills | NorthWestern vs. Otter Tail | NorthWestern vs. Avista |
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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.
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