Correlation Between Metro Bank and Discover Financial
Can any of the company-specific risk be diversified away by investing in both Metro Bank 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 Metro Bank and Discover Financial into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Metro Bank PLC and Discover Financial Services, you can compare the effects of market volatilities on Metro Bank 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 Metro Bank with a short position of Discover Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Metro Bank and Discover Financial.
Diversification Opportunities for Metro Bank and Discover Financial
0.92 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Metro and Discover is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Metro Bank 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 Metro Bank 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 Metro Bank 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 Metro Bank i.e., Metro Bank and Discover Financial go up and down completely randomly.
Pair Corralation between Metro Bank and Discover Financial
Assuming the 90 days trading horizon Metro Bank is expected to generate 54.15 times less return on investment than Discover Financial. In addition to that, Metro Bank is 1.56 times more volatile than Discover Financial Services. It trades about 0.0 of its total potential returns per unit of risk. Discover Financial Services is currently generating about 0.06 per unit of volatility. If you would invest 9,902 in Discover Financial Services on October 11, 2024 and sell it today you would earn a total of 7,735 from holding Discover Financial Services or generate 78.12% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 96.59% |
| Values | Daily Returns |
Metro Bank PLC vs. Discover Financial Services
Performance |
| Timeline |
| Metro Bank PLC |
| Discover Financial |
Metro Bank and Discover Financial Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Metro Bank and Discover Financial
The main advantage of trading using opposite Metro Bank and Discover Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Metro Bank 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.| Metro Bank vs. JD Sports Fashion | Metro Bank vs. Molson Coors Beverage | Metro Bank vs. Verizon Communications | Metro Bank vs. Universal Display Corp |
| Discover Financial vs. Westlake Chemical Corp | Discover Financial vs. Everyman Media Group | Discover Financial vs. Liberty Media Corp | Discover Financial vs. JD Sports Fashion |
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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.
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