Correlation Between Discover Financial and Porvair Plc

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

Diversification Opportunities for Discover Financial and Porvair Plc

0.47

Correlation Coefficient

Discover Financial  Porvair Plc

Very weak diversification

The 3 months correlation between Discover and Porvair is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding Discover Financial Services and Porvair plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Porvair 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 Porvair Plc. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Porvair plc has no effect on the direction of Discover Financial i.e., Discover Financial and Porvair Plc go up and down completely randomly.

Pair Corralation between Discover Financial and Porvair Plc

Assuming the 90 days trading horizon Discover Financial Services is expected to generate 1.37 times more return on investment than Porvair Plc. However, Discover Financial is 1.37 times more volatile than Porvair plc. It trades about -0.01 of its potential returns per unit of risk. Porvair plc is currently generating about -0.03 per unit of risk. If you would invest  17,479  in Discover Financial Services on December 25, 2024 and sell it today you would lose (569.00) from holding Discover Financial Services or give up 3.26% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	95.08%
Values	Daily Returns

Discover Financial Services  vs.  Porvair plc

Discover Financial

Risk-Adjusted Performance

Very Weak

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

Porvair plc

Risk-Adjusted Performance

Very Weak

Over the last 90 days Porvair plc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Porvair Plc is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Discover Financial and Porvair Plc

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

The idea behind Discover Financial Services and Porvair 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.