Correlation Between Discover Financial and Futura Medical

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

Diversification Opportunities for Discover Financial and Futura Medical

-0.2

Correlation Coefficient

Discover Financial  Futura Medical

Good diversification

The 3 months correlation between Discover and Futura is -0.2. Overlapping area represents the amount of risk that can be diversified away by holding Discover Financial Services and Futura Medical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Futura Medical 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 Futura Medical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Futura Medical has no effect on the direction of Discover Financial i.e., Discover Financial and Futura Medical go up and down completely randomly.

Pair Corralation between Discover Financial and Futura Medical

Assuming the 90 days trading horizon Discover Financial Services is expected to generate 0.85 times more return on investment than Futura Medical. However, Discover Financial Services is 1.18 times less risky than Futura Medical. It trades about 0.15 of its potential returns per unit of risk. Futura Medical is currently generating about -0.03 per unit of risk. If you would invest  11,980  in Discover Financial Services on September 3, 2024 and sell it today you would earn a total of  6,263  from holding Discover Financial Services or generate 52.28% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	96.88%
Values	Daily Returns

Discover Financial Services  vs.  Futura Medical

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.

Futura Medical

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Futura Medical has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with Discover Financial and Futura Medical

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

The idea behind Discover Financial Services and Futura Medical 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.