Correlation Between Discover Financial and NYSE Composite
Can any of the company-specific risk be diversified away by investing in both Discover Financial and NYSE Composite 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 NYSE Composite 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 NYSE Composite, you can compare the effects of market volatilities on Discover Financial and NYSE Composite 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 NYSE Composite. Check out your portfolio center. Please also check ongoing floating volatility patterns of Discover Financial and NYSE Composite.
Diversification Opportunities for Discover Financial and NYSE Composite
0.83 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Discover and NYSE is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Discover Financial Services and NYSE Composite in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NYSE Composite 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 NYSE Composite. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NYSE Composite has no effect on the direction of Discover Financial i.e., Discover Financial and NYSE Composite go up and down completely randomly.
Pair Corralation between Discover Financial and NYSE Composite
Considering the 90-day investment horizon Discover Financial Services is expected to generate 7.82 times more return on investment than NYSE Composite. However, Discover Financial is 7.82 times more volatile than NYSE Composite. It trades about 0.23 of its potential returns per unit of risk. NYSE Composite is currently generating about 0.42 per unit of risk. If you would invest 14,783 in Discover Financial Services on September 1, 2024 and sell it today you would earn a total of 3,460 from holding Discover Financial Services or generate 23.41% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Discover Financial Services vs. NYSE Composite
Performance |
| Timeline |
Discover Financial and NYSE Composite Volatility Contrast
Predicted Return Density |
| Returns |
Discover Financial Services
Pair trading matchups for Discover Financial
NYSE Composite
Pair trading matchups for NYSE Composite
Pair Trading with Discover Financial and NYSE Composite
The main advantage of trading using opposite Discover Financial and NYSE Composite positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Discover Financial position performs unexpectedly, NYSE Composite 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 NYSE Composite will offset losses from the drop in NYSE Composite'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 |
| NYSE Composite vs. Acumen Pharmaceuticals | NYSE Composite vs. Mind Medicine | NYSE Composite vs. NL Industries | NYSE Composite vs. Ecovyst |
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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.
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