Correlation Between Lumia and Discover Financial
Can any of the company-specific risk be diversified away by investing in both Lumia 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 Lumia and Discover Financial into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Lumia and Discover Financial Services, you can compare the effects of market volatilities on Lumia 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 Lumia with a short position of Discover Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Lumia and Discover Financial.
Diversification Opportunities for Lumia and Discover Financial
0.33 | Correlation Coefficient |
Weak diversification
The 3 months correlation between Lumia and Discover is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding Lumia and Discover Financial Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Discover Financial and Lumia 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 Lumia 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 Lumia i.e., Lumia and Discover Financial go up and down completely randomly.
Pair Corralation between Lumia and Discover Financial
Assuming the 90 days trading horizon Lumia is expected to under-perform the Discover Financial. In addition to that, Lumia is 3.0 times more volatile than Discover Financial Services. It trades about -0.33 of its total potential returns per unit of risk. Discover Financial Services is currently generating about 0.45 per unit of volatility. If you would invest 17,293 in Discover Financial Services on November 2, 2024 and sell it today you would earn a total of 3,167 from holding Discover Financial Services or generate 18.31% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 90.48% |
| Values | Daily Returns |
Lumia vs. Discover Financial Services
Performance |
| Timeline |
| Lumia |
| Discover Financial |
Lumia and Discover Financial Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Lumia and Discover Financial
The main advantage of trading using opposite Lumia and Discover Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Lumia 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 Lumia 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. Metro Bank PLC | Discover Financial vs. Mobius Investment Trust | Discover Financial vs. JPMorgan Japanese Investment | Discover Financial vs. Trainline Plc |
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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.
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