Correlation Between Discover Financial and Teradata Corp

Can any of the company-specific risk be diversified away by investing in both Discover Financial and Teradata Corp 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 Discover Financial and Teradata Corp into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Discover Financial Services and Teradata Corp, you can compare the effects of market volatilities on Discover Financial and Teradata Corp 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 Discover Financial with a short position of Teradata Corp. Check out your portfolio center. Please also check ongoing floating volatility patterns of Discover Financial and Teradata Corp.

Diversification Opportunities for Discover Financial and Teradata Corp

0.28

Correlation Coefficient

Discover Financial  Teradata Corp

Modest diversification

The 3 months correlation between Discover and Teradata is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding Discover Financial Services and Teradata Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Teradata Corp and Discover Financial 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 Discover Financial Services are associated (or correlated) with Teradata Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Teradata Corp has no effect on the direction of Discover Financial i.e., Discover Financial and Teradata Corp go up and down completely randomly.

Pair Corralation between Discover Financial and Teradata Corp

Assuming the 90 days trading horizon Discover Financial Services is expected to generate 1.28 times more return on investment than Teradata Corp. However, Discover Financial is 1.28 times more volatile than Teradata Corp. It trades about 0.16 of its potential returns per unit of risk. Teradata Corp is currently generating about 0.08 per unit of risk. If you would invest  13,771  in Discover Financial Services on August 31, 2024 and sell it today you would earn a total of  4,411  from holding Discover Financial Services or generate 32.03% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.41%
Values	Daily Returns

Discover Financial Services  vs.  Teradata Corp

Discover Financial

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Discover Financial Services are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, Discover Financial unveiled solid returns over the last few months and may actually be approaching a breakup point.

Teradata Corp

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Teradata Corp are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, Teradata Corp may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Discover Financial and Teradata Corp

The main advantage of trading using opposite Discover Financial and Teradata Corp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Discover Financial position performs unexpectedly, Teradata Corp 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 Teradata Corp will offset losses from the drop in Teradata Corp's long position.

The idea behind Discover Financial Services and Teradata Corp 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.

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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.