Correlation Between London Security and Discover Financial
Can any of the company-specific risk be diversified away by investing in both London Security 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 London Security and Discover Financial into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between London Security Plc and Discover Financial Services, you can compare the effects of market volatilities on London Security 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 London Security with a short position of Discover Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of London Security and Discover Financial.
Diversification Opportunities for London Security and Discover Financial
-0.81 | Correlation Coefficient |
Pay attention - limited upside
The 3 months correlation between London and Discover is -0.81. Overlapping area represents the amount of risk that can be diversified away by holding London Security Plc and Discover Financial Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Discover Financial and London Security 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 London Security Plc 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 London Security i.e., London Security and Discover Financial go up and down completely randomly.
Pair Corralation between London Security and Discover Financial
Assuming the 90 days trading horizon London Security Plc is expected to under-perform the Discover Financial. But the stock apears to be less risky and, when comparing its historical volatility, London Security Plc is 1.98 times less risky than Discover Financial. The stock trades about -0.22 of its potential returns per unit of risk. The Discover Financial Services is currently generating about 0.27 of returns per unit of risk over similar time horizon. If you would invest 14,810 in Discover Financial Services on September 3, 2024 and sell it today you would earn a total of 3,433 from holding Discover Financial Services or generate 23.18% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Significant |
| Accuracy | 95.24% |
| Values | Daily Returns |
London Security Plc vs. Discover Financial Services
Performance |
| Timeline |
| London Security Plc |
| Discover Financial |
London Security and Discover Financial Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with London Security and Discover Financial
The main advantage of trading using opposite London Security and Discover Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if London Security 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.| London Security vs. Griffin Mining | London Security vs. Lundin Mining Corp | London Security vs. Veolia Environnement VE | London Security vs. Caledonia Mining |
| Discover Financial vs. Catalyst Media Group | Discover Financial vs. CATLIN GROUP | Discover Financial vs. Magnora ASA | Discover Financial vs. RTW Venture Fund |
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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..
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