Correlation Between Discover Financial and SilverCrest Metals

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

Diversification Opportunities for Discover Financial and SilverCrest Metals

0.46

Correlation Coefficient

Discover Financial  SilverCrest Metals

Very weak diversification

The 3 months correlation between Discover and SilverCrest is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding Discover Financial Services and SilverCrest Metals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SilverCrest Metals 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 SilverCrest Metals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SilverCrest Metals has no effect on the direction of Discover Financial i.e., Discover Financial and SilverCrest Metals go up and down completely randomly.

Pair Corralation between Discover Financial and SilverCrest Metals

Assuming the 90 days trading horizon Discover Financial Services is expected to generate 0.43 times more return on investment than SilverCrest Metals. However, Discover Financial Services is 2.3 times less risky than SilverCrest Metals. It trades about 0.11 of its potential returns per unit of risk. SilverCrest Metals is currently generating about 0.05 per unit of risk. If you would invest  13,010  in Discover Financial Services on October 10, 2024 and sell it today you would earn a total of  4,696  from holding Discover Financial Services or generate 36.1% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	43.44%
Values	Daily Returns

Discover Financial Services  vs.  SilverCrest Metals

Discover Financial

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Discover Financial Services are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Discover Financial unveiled solid returns over the last few months and may actually be approaching a breakup point.

SilverCrest Metals

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days SilverCrest Metals has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively uncertain basic indicators, SilverCrest Metals unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Discover Financial and SilverCrest Metals

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

The idea behind Discover Financial Services and SilverCrest Metals 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.