Correlation Between BANK RAKYAT and Discover Financial

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

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

Diversification Opportunities for BANK RAKYAT and Discover Financial

-0.34

Correlation Coefficient

BANK RAKYAT  Discover Financial

Very good diversification

The 3 months correlation between BANK and Discover is -0.34. Overlapping area represents the amount of risk that can be diversified away by holding BANK RAKYAT IND and Discover Financial Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Discover Financial and BANK RAKYAT 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 BANK RAKYAT IND 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 BANK RAKYAT i.e., BANK RAKYAT and Discover Financial go up and down completely randomly.

Pair Corralation between BANK RAKYAT and Discover Financial

Assuming the 90 days trading horizon BANK RAKYAT is expected to generate 1.41 times less return on investment than Discover Financial. In addition to that, BANK RAKYAT is 2.59 times more volatile than Discover Financial Services. It trades about 0.02 of its total potential returns per unit of risk. Discover Financial Services is currently generating about 0.08 per unit of volatility. If you would invest  16,993  in Discover Financial Services on December 3, 2024 and sell it today you would earn a total of  1,307  from holding Discover Financial Services or generate 7.69% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.36%
Values	Daily Returns

BANK RAKYAT IND  vs.  Discover Financial Services

BANK RAKYAT IND

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in BANK RAKYAT IND are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental indicators, BANK RAKYAT is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Discover Financial

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Discover Financial Services are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Discover Financial may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with BANK RAKYAT and Discover Financial

The main advantage of trading using opposite BANK RAKYAT and Discover Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BANK RAKYAT 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 BANK RAKYAT IND 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.