Correlation Between Discover Financial and Banco Santander

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

Diversification Opportunities for Discover Financial and Banco Santander

0.43

Correlation Coefficient

Discover Financial  Banco Santander

Very weak diversification

The 3 months correlation between Discover and Banco is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding Discover Financial Services and Banco Santander Chile in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Banco Santander Chile 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 Banco Santander. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Banco Santander Chile has no effect on the direction of Discover Financial i.e., Discover Financial and Banco Santander go up and down completely randomly.

Pair Corralation between Discover Financial and Banco Santander

Assuming the 90 days trading horizon Discover Financial Services is expected to generate 0.05 times more return on investment than Banco Santander. However, Discover Financial Services is 21.78 times less risky than Banco Santander. It trades about 0.16 of its potential returns per unit of risk. Banco Santander Chile is currently generating about 0.0 per unit of risk. If you would invest  41,685  in Discover Financial Services on October 8, 2024 and sell it today you would earn a total of  148.00  from holding Discover Financial Services or generate 0.36% return on investment over 90 days.

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

Discover Financial Services  vs.  Banco Santander Chile

Discover Financial

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Discover Financial Services are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak technical and fundamental indicators, Discover Financial sustained solid returns over the last few months and may actually be approaching a breakup point.

Banco Santander Chile

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Banco Santander Chile are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Banco Santander is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Discover Financial and Banco Santander

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

The idea behind Discover Financial Services and Banco Santander Chile 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.

Check out your portfolio center.

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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.