Correlation Between Discover Financial and TechnipFMC PLC

Can any of the company-specific risk be diversified away by investing in both Discover Financial and TechnipFMC PLC 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 TechnipFMC PLC 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 TechnipFMC PLC, you can compare the effects of market volatilities on Discover Financial and TechnipFMC PLC 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 TechnipFMC PLC. Check out your portfolio center. Please also check ongoing floating volatility patterns of Discover Financial and TechnipFMC PLC.

Diversification Opportunities for Discover Financial and TechnipFMC PLC

0.89

Correlation Coefficient

Discover Financial  TechnipFMC PLC

Very poor diversification

The 3 months correlation between Discover and TechnipFMC is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Discover Financial Services and TechnipFMC PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TechnipFMC PLC 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 TechnipFMC PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TechnipFMC PLC has no effect on the direction of Discover Financial i.e., Discover Financial and TechnipFMC PLC go up and down completely randomly.

Pair Corralation between Discover Financial and TechnipFMC PLC

Assuming the 90 days trading horizon Discover Financial is expected to generate 2.66 times less return on investment than TechnipFMC PLC. But when comparing it to its historical volatility, Discover Financial Services is 1.98 times less risky than TechnipFMC PLC. It trades about 0.06 of its potential returns per unit of risk. TechnipFMC PLC is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  655.00  in TechnipFMC PLC on October 11, 2024 and sell it today you would earn a total of  2,484  from holding TechnipFMC PLC or generate 379.24% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	96.77%
Values	Daily Returns

Discover Financial Services  vs.  TechnipFMC PLC

Discover Financial

Risk-Adjusted Performance

10 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Discover Financial Services are ranked lower than 10 (%) 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.

TechnipFMC PLC

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in TechnipFMC PLC are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, TechnipFMC PLC unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Discover Financial and TechnipFMC PLC

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

The idea behind Discover Financial Services and TechnipFMC PLC 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.