Correlation Between Discover Financial and Visa
Can any of the company-specific risk be diversified away by investing in both Discover Financial and Visa 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 Visa 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 Visa Class A, you can compare the effects of market volatilities on Discover Financial and Visa 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 Visa. Check out your portfolio center. Please also check ongoing floating volatility patterns of Discover Financial and Visa.
Diversification Opportunities for Discover Financial and Visa
0.88 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Discover and Visa is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Discover Financial Services and Visa Class A in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Visa Class A 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 Visa. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Visa Class A has no effect on the direction of Discover Financial i.e., Discover Financial and Visa go up and down completely randomly.
Pair Corralation between Discover Financial and Visa
Considering the 90-day investment horizon Discover Financial Services is expected to generate 2.31 times more return on investment than Visa. However, Discover Financial is 2.31 times more volatile than Visa Class A. It trades about 0.12 of its potential returns per unit of risk. Visa Class A is currently generating about 0.08 per unit of risk. If you would invest 9,111 in Discover Financial Services on August 26, 2024 and sell it today you would earn a total of 8,818 from holding Discover Financial Services or generate 96.78% 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. Visa Class A
Performance |
| Timeline |
| Discover Financial |
| Visa Class A |
Discover Financial and Visa Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Discover Financial and Visa
The main advantage of trading using opposite Discover Financial and Visa positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Discover Financial position performs unexpectedly, Visa 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 Visa will offset losses from the drop in Visa'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 |
| Visa vs. American Express | Visa vs. Morningstar Unconstrained Allocation | Visa vs. Sitka Gold Corp | Visa vs. MSCI ACWI exAUCONSUMER |
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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.
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