Correlation Between SMA Solar and Discover Financial

Can any of the company-specific risk be diversified away by investing in both SMA Solar and Discover Financial 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 SMA Solar and Discover Financial into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between SMA Solar Technology and Discover Financial Services, you can compare the effects of market volatilities on SMA Solar and Discover Financial 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 SMA Solar with a short position of Discover Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of SMA Solar and Discover Financial.

Diversification Opportunities for SMA Solar and Discover Financial

-0.69

Correlation Coefficient

SMA Solar  Discover Financial

Excellent diversification

The 3 months correlation between SMA and Discover is -0.69. Overlapping area represents the amount of risk that can be diversified away by holding SMA Solar Technology and Discover Financial Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Discover Financial and SMA Solar 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 SMA Solar Technology are associated (or correlated) with Discover Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Discover Financial has no effect on the direction of SMA Solar i.e., SMA Solar and Discover Financial go up and down completely randomly.

Pair Corralation between SMA Solar and Discover Financial

Assuming the 90 days trading horizon SMA Solar Technology is expected to generate 1.96 times more return on investment than Discover Financial. However, SMA Solar is 1.96 times more volatile than Discover Financial Services. It trades about 0.15 of its potential returns per unit of risk. Discover Financial Services is currently generating about -0.02 per unit of risk. If you would invest  1,397  in SMA Solar Technology on December 22, 2024 and sell it today you would earn a total of  724.00  from holding SMA Solar Technology or generate 51.83% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	93.65%
Values	Daily Returns

SMA Solar Technology  vs.  Discover Financial Services

SMA Solar Technology

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in SMA Solar Technology are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, SMA Solar unveiled solid returns over the last few months and may actually be approaching a breakup point.

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 latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with SMA Solar and Discover Financial

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

The idea behind SMA Solar Technology and Discover Financial Services 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 Top Crypto Exchanges module to search and analyze digital assets across top global cryptocurrency exchanges.