Correlation Between Discover Financial and Ondine Biomedical

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

Diversification Opportunities for Discover Financial and Ondine Biomedical

0.61

Correlation Coefficient

Discover Financial  Ondine Biomedical

Poor diversification

The 3 months correlation between Discover and Ondine is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Discover Financial Services and Ondine Biomedical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ondine Biomedical 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 Ondine Biomedical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ondine Biomedical has no effect on the direction of Discover Financial i.e., Discover Financial and Ondine Biomedical go up and down completely randomly.

Pair Corralation between Discover Financial and Ondine Biomedical

Assuming the 90 days trading horizon Discover Financial Services is expected to generate 1.06 times more return on investment than Ondine Biomedical. However, Discover Financial is 1.06 times more volatile than Ondine Biomedical. It trades about 0.13 of its potential returns per unit of risk. Ondine Biomedical is currently generating about -0.03 per unit of risk. If you would invest  15,196  in Discover Financial Services on September 27, 2024 and sell it today you would earn a total of  2,441  from holding Discover Financial Services or generate 16.06% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	97.67%
Values	Daily Returns

Discover Financial Services  vs.  Ondine Biomedical

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.

Ondine Biomedical

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Ondine Biomedical are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, Ondine Biomedical exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Discover Financial and Ondine Biomedical

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

The idea behind Discover Financial Services and Ondine Biomedical 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.