Correlation Between Discover Financial and 784730AB9

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Can any of the company-specific risk be diversified away by investing in both Discover Financial and 784730AB9 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 784730AB9 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 US784730AB94, you can compare the effects of market volatilities on Discover Financial and 784730AB9 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 784730AB9. Check out your portfolio center. Please also check ongoing floating volatility patterns of Discover Financial and 784730AB9.

Diversification Opportunities for Discover Financial and 784730AB9

0.57
  Correlation Coefficient

Very weak diversification

The 3 months correlation between Discover and 784730AB9 is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding Discover Financial Services and US784730AB94 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on US784730AB94 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 784730AB9. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of US784730AB94 has no effect on the direction of Discover Financial i.e., Discover Financial and 784730AB9 go up and down completely randomly.

Pair Corralation between Discover Financial and 784730AB9

Considering the 90-day investment horizon Discover Financial Services is expected to generate 1.0 times more return on investment than 784730AB9. However, Discover Financial is 1.0 times more volatile than US784730AB94. It trades about 0.12 of its potential returns per unit of risk. US784730AB94 is currently generating about 0.07 per unit of risk. If you would invest  14,124  in Discover Financial Services on October 26, 2024 and sell it today you would earn a total of  5,972  from holding Discover Financial Services or generate 42.28% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy29.27%
ValuesDaily Returns

Discover Financial Services  vs.  US784730AB94

 Performance 
       Timeline  
Discover Financial 

Risk-Adjusted Performance

12 of 100

 
Weak
 
Strong
Good
Compared to the overall equity markets, risk-adjusted returns on investments in Discover Financial Services are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively abnormal technical and fundamental indicators, Discover Financial unveiled solid returns over the last few months and may actually be approaching a breakup point.
US784730AB94 

Risk-Adjusted Performance

4 of 100

 
Weak
 
Strong
Insignificant
Compared to the overall equity markets, risk-adjusted returns on investments in US784730AB94 are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat fragile basic indicators, 784730AB9 sustained solid returns over the last few months and may actually be approaching a breakup point.

Discover Financial and 784730AB9 Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Discover Financial and 784730AB9

The main advantage of trading using opposite Discover Financial and 784730AB9 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Discover Financial position performs unexpectedly, 784730AB9 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 784730AB9 will offset losses from the drop in 784730AB9's long position.
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The idea behind Discover Financial Services and US784730AB94 pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.
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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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.

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