Correlation Between Discover Financial and Trainline Plc

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

Diversification Opportunities for Discover Financial and Trainline Plc

0.05

Correlation Coefficient

Discover Financial  Trainline Plc

Significant diversification

The 3 months correlation between Discover and Trainline is 0.05. Overlapping area represents the amount of risk that can be diversified away by holding Discover Financial Services and Trainline Plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Trainline 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 Trainline Plc. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Trainline Plc has no effect on the direction of Discover Financial i.e., Discover Financial and Trainline Plc go up and down completely randomly.

Pair Corralation between Discover Financial and Trainline Plc

Assuming the 90 days trading horizon Discover Financial Services is expected to generate 0.92 times more return on investment than Trainline Plc. However, Discover Financial Services is 1.09 times less risky than Trainline Plc. It trades about -0.03 of its potential returns per unit of risk. Trainline Plc is currently generating about -0.21 per unit of risk. If you would invest  17,575  in Discover Financial Services on December 24, 2024 and sell it today you would lose (1,186) from holding Discover Financial Services or give up 6.75% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	93.55%
Values	Daily Returns

Discover Financial Services  vs.  Trainline 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.

Trainline Plc

Risk-Adjusted Performance

Very Weak

Over the last 90 days Trainline Plc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's technical and fundamental indicators remain rather sound which may send shares a bit higher in April 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Discover Financial and Trainline Plc

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

The idea behind Discover Financial Services and Trainline 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.