Correlation Between Compagnie Financire and Discovery Holdings

Can any of the company-specific risk be diversified away by investing in both Compagnie Financire and Discovery Holdings 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 Compagnie Financire and Discovery Holdings into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Compagnie Financire Richemont and Discovery Holdings, you can compare the effects of market volatilities on Compagnie Financire and Discovery Holdings 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 Compagnie Financire with a short position of Discovery Holdings. Check out your portfolio center. Please also check ongoing floating volatility patterns of Compagnie Financire and Discovery Holdings.

Diversification Opportunities for Compagnie Financire and Discovery Holdings

0.25

Correlation Coefficient

Compagnie Financire  Discovery Holdings

Modest diversification

The 3 months correlation between Compagnie and Discovery is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding Compagnie Financire Richemont and Discovery Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Discovery Holdings and Compagnie Financire 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 Compagnie Financire Richemont are associated (or correlated) with Discovery Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Discovery Holdings has no effect on the direction of Compagnie Financire i.e., Compagnie Financire and Discovery Holdings go up and down completely randomly.

Pair Corralation between Compagnie Financire and Discovery Holdings

Assuming the 90 days trading horizon Compagnie Financire Richemont is expected to generate 1.69 times more return on investment than Discovery Holdings. However, Compagnie Financire is 1.69 times more volatile than Discovery Holdings. It trades about 0.21 of its potential returns per unit of risk. Discovery Holdings is currently generating about -0.11 per unit of risk. If you would invest  27,424,700  in Compagnie Financire Richemont on October 14, 2024 and sell it today you would earn a total of  1,765,300  from holding Compagnie Financire Richemont or generate 6.44% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Compagnie Financire Richemont  vs.  Discovery Holdings

Compagnie Financire

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Compagnie Financire Richemont are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak technical and fundamental indicators, Compagnie Financire may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Discovery Holdings

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Discovery Holdings are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, Discovery Holdings may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Compagnie Financire and Discovery Holdings

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

The idea behind Compagnie Financire Richemont and Discovery Holdings 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.