Correlation Between Discover Financial and Naked Wines

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

Diversification Opportunities for Discover Financial and Naked Wines

-0.08

Correlation Coefficient

Discover Financial  Naked Wines

Good diversification

The 3 months correlation between Discover and Naked is -0.08. Overlapping area represents the amount of risk that can be diversified away by holding Discover Financial Services and Naked Wines plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Naked Wines 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 Naked Wines. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Naked Wines plc has no effect on the direction of Discover Financial i.e., Discover Financial and Naked Wines go up and down completely randomly.

Pair Corralation between Discover Financial and Naked Wines

Assuming the 90 days trading horizon Discover Financial Services is expected to generate 1.26 times more return on investment than Naked Wines. However, Discover Financial is 1.26 times more volatile than Naked Wines plc. It trades about 0.16 of its potential returns per unit of risk. Naked Wines plc is currently generating about -0.04 per unit of risk. If you would invest  13,771  in Discover Financial Services on August 31, 2024 and sell it today you would earn a total of  4,472  from holding Discover Financial Services or generate 32.47% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Discover Financial Services  vs.  Naked Wines plc

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.

Naked Wines plc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Naked Wines plc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Naked Wines 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 Naked Wines

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

The idea behind Discover Financial Services and Naked Wines 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.