Correlation Between NorthWestern and Discover Financial
Can any of the company-specific risk be diversified away by investing in both NorthWestern 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 NorthWestern and Discover Financial into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between NorthWestern and Discover Financial Services, you can compare the effects of market volatilities on NorthWestern 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 NorthWestern with a short position of Discover Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of NorthWestern and Discover Financial.
Diversification Opportunities for NorthWestern and Discover Financial
0.02 | Correlation Coefficient |
Significant diversification
The 3 months correlation between NorthWestern and Discover is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding NorthWestern and Discover Financial Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Discover Financial and NorthWestern 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 NorthWestern 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 NorthWestern i.e., NorthWestern and Discover Financial go up and down completely randomly.
Pair Corralation between NorthWestern and Discover Financial
Considering the 90-day investment horizon NorthWestern is expected to generate 5.1 times less return on investment than Discover Financial. But when comparing it to its historical volatility, NorthWestern is 2.27 times less risky than Discover Financial. It trades about 0.06 of its potential returns per unit of risk. Discover Financial Services is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest 12,167 in Discover Financial Services on August 30, 2024 and sell it today you would earn a total of 6,089 from holding Discover Financial Services or generate 50.05% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
NorthWestern vs. Discover Financial Services
Performance |
| Timeline |
| NorthWestern |
| Discover Financial |
NorthWestern and Discover Financial Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with NorthWestern and Discover Financial
The main advantage of trading using opposite NorthWestern and Discover Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NorthWestern 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.| NorthWestern vs. Allete Inc | NorthWestern vs. Black Hills | NorthWestern vs. Otter Tail | NorthWestern vs. Avista |
| Discover Financial vs. 360 Finance | Discover Financial vs. Atlanticus Holdings | Discover Financial vs. X Financial Class | Discover Financial vs. Yirendai |
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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.
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