Correlation Between Alstria Office and Discover Financial

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

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

Diversification Opportunities for Alstria Office and Discover Financial

0.3

Correlation Coefficient

Alstria Office  Discover Financial

Weak diversification

The 3 months correlation between Alstria and Discover is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding alstria office REIT AG and Discover Financial Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Discover Financial and Alstria Office 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 alstria office REIT AG 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 Alstria Office i.e., Alstria Office and Discover Financial go up and down completely randomly.

Pair Corralation between Alstria Office and Discover Financial

Assuming the 90 days trading horizon alstria office REIT AG is expected to generate 2.11 times more return on investment than Discover Financial. However, Alstria Office is 2.11 times more volatile than Discover Financial Services. It trades about 0.14 of its potential returns per unit of risk. Discover Financial Services is currently generating about -0.03 per unit of risk. If you would invest  363.00  in alstria office REIT AG on December 24, 2024 and sell it today you would earn a total of  190.00  from holding alstria office REIT AG or generate 52.34% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	96.67%
Values	Daily Returns

alstria office REIT AG  vs.  Discover Financial Services

alstria office REIT

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in alstria office REIT AG are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite quite unsteady essential indicators, Alstria Office disclosed 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 newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Alstria Office and Discover Financial

The main advantage of trading using opposite Alstria Office and Discover Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Alstria Office 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 alstria office REIT AG 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.