Correlation Between Discover Financial and Fevertree Drinks

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

Diversification Opportunities for Discover Financial and Fevertree Drinks

0.45

Correlation Coefficient

Discover Financial  Fevertree Drinks

Very weak diversification

The 3 months correlation between Discover and Fevertree is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding Discover Financial Services and Fevertree Drinks Plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fevertree Drinks 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 Fevertree Drinks. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fevertree Drinks Plc has no effect on the direction of Discover Financial i.e., Discover Financial and Fevertree Drinks go up and down completely randomly.

Pair Corralation between Discover Financial and Fevertree Drinks

Assuming the 90 days trading horizon Discover Financial Services is expected to generate 0.84 times more return on investment than Fevertree Drinks. However, Discover Financial Services is 1.19 times less risky than Fevertree Drinks. It trades about 0.11 of its potential returns per unit of risk. Fevertree Drinks Plc is currently generating about -0.08 per unit of risk. If you would invest  11,924  in Discover Financial Services on December 2, 2024 and sell it today you would earn a total of  7,490  from holding Discover Financial Services or generate 62.81% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	97.2%
Values	Daily Returns

Discover Financial Services  vs.  Fevertree Drinks Plc

Discover Financial

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Discover Financial Services are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Discover Financial may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Fevertree Drinks Plc

Risk-Adjusted Performance

Very Weak

Over the last 90 days Fevertree Drinks Plc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Fevertree Drinks is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Discover Financial and Fevertree Drinks

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

The idea behind Discover Financial Services and Fevertree Drinks 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.

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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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.