Correlation Between Alphabet and Discover Financial
Can any of the company-specific risk be diversified away by investing in both Alphabet and Discover Financial 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 Alphabet and Discover Financial into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Alphabet Inc Class C and Discover Financial Services, you can compare the effects of market volatilities on Alphabet and Discover Financial 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 Alphabet with a short position of Discover Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Alphabet and Discover Financial.
Diversification Opportunities for Alphabet and Discover Financial
0.83 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Alphabet and Discover is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Alphabet Inc Class C and Discover Financial Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Discover Financial and Alphabet 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 Alphabet Inc Class C are associated (or correlated) with Discover Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Discover Financial has no effect on the direction of Alphabet i.e., Alphabet and Discover Financial go up and down completely randomly.
Pair Corralation between Alphabet and Discover Financial
Given the investment horizon of 90 days Alphabet Inc Class C is expected to under-perform the Discover Financial. But the stock apears to be less risky and, when comparing its historical volatility, Alphabet Inc Class C is 2.43 times less risky than Discover Financial. The stock trades about -0.02 of its potential returns per unit of risk. The Discover Financial Services is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest 15,226 in Discover Financial Services on August 27, 2024 and sell it today you would earn a total of 3,041 from holding Discover Financial Services or generate 19.97% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Alphabet Inc Class C vs. Discover Financial Services
Performance |
| Timeline |
| Alphabet Class C |
| Discover Financial |
Alphabet and Discover Financial Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Alphabet and Discover Financial
The main advantage of trading using opposite Alphabet and Discover Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Alphabet position performs unexpectedly, Discover Financial 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 Discover Financial will offset losses from the drop in Discover Financial's long position.The idea behind Alphabet Inc Class C and Discover Financial Services 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.| Discover Financial vs. SLM Corp | Discover Financial vs. Orix Corp Ads | Discover Financial vs. FirstCash | Discover Financial vs. Medallion Financial Corp |
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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.
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