Correlation Between PayPal Holdings and Discover Financial
Can any of the company-specific risk be diversified away by investing in both PayPal Holdings 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 PayPal Holdings and Discover Financial into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between PayPal Holdings and Discover Financial Services, you can compare the effects of market volatilities on PayPal Holdings 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 PayPal Holdings with a short position of Discover Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of PayPal Holdings and Discover Financial.
Diversification Opportunities for PayPal Holdings and Discover Financial
0.84 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between PayPal and Discover is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding PayPal Holdings and Discover Financial Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Discover Financial and PayPal Holdings 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 PayPal Holdings 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 PayPal Holdings i.e., PayPal Holdings and Discover Financial go up and down completely randomly.
Pair Corralation between PayPal Holdings and Discover Financial
Given the investment horizon of 90 days PayPal Holdings is expected to generate 1.6 times less return on investment than Discover Financial. But when comparing it to its historical volatility, PayPal Holdings is 1.13 times less risky than Discover Financial. It trades about 0.09 of its potential returns per unit of risk. Discover Financial Services is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest 9,111 in Discover Financial Services on August 26, 2024 and sell it today you would earn a total of 8,818 from holding Discover Financial Services or generate 96.78% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
PayPal Holdings vs. Discover Financial Services
Performance |
| Timeline |
| PayPal Holdings |
| Discover Financial |
PayPal Holdings and Discover Financial Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with PayPal Holdings and Discover Financial
The main advantage of trading using opposite PayPal Holdings and Discover Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if PayPal Holdings 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.| PayPal Holdings vs. American Express | PayPal Holdings vs. Morningstar Unconstrained Allocation | PayPal Holdings vs. Sitka Gold Corp | PayPal Holdings vs. MSCI ACWI exAUCONSUMER |
| Discover Financial vs. Ally Financial | Discover Financial vs. Synchrony Financial | Discover Financial vs. Western Union Co | Discover Financial vs. Bread Financial Holdings |
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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.
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