Correlation Between International Biotechnology and Discover Financial
Can any of the company-specific risk be diversified away by investing in both International Biotechnology 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 International Biotechnology and Discover Financial into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between International Biotechnology Trust and Discover Financial Services, you can compare the effects of market volatilities on International Biotechnology 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 International Biotechnology with a short position of Discover Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of International Biotechnology and Discover Financial.
Diversification Opportunities for International Biotechnology and Discover Financial
0.81 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between International and Discover is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding International Biotechnology Tr and Discover Financial Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Discover Financial and International Biotechnology 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 International Biotechnology Trust 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 International Biotechnology i.e., International Biotechnology and Discover Financial go up and down completely randomly.
Pair Corralation between International Biotechnology and Discover Financial
Assuming the 90 days trading horizon International Biotechnology is expected to generate 6.37 times less return on investment than Discover Financial. But when comparing it to its historical volatility, International Biotechnology Trust is 1.79 times less risky than Discover Financial. It trades about 0.02 of its potential returns per unit of risk. Discover Financial Services is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest 8,679 in Discover Financial Services on December 13, 2024 and sell it today you would earn a total of 7,088 from holding Discover Financial Services or generate 81.67% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 97.33% |
| Values | Daily Returns |
International Biotechnology Tr vs. Discover Financial Services
Performance |
| Timeline |
| International Biotechnology |
| Discover Financial |
International Biotechnology and Discover Financial Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with International Biotechnology and Discover Financial
The main advantage of trading using opposite International Biotechnology and Discover Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if International Biotechnology 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 International Biotechnology Trust 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.
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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 Stocks Directory module to find actively traded stocks across global markets.
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