Correlation Between Discover Financial and Best Buy

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

Diversification Opportunities for Discover Financial and Best Buy

-0.61

Correlation Coefficient

Discover Financial  Best Buy

Excellent diversification

The 3 months correlation between Discover and Best is -0.61. Overlapping area represents the amount of risk that can be diversified away by holding Discover Financial Services and Best Buy Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Best Buy 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 Best Buy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Best Buy has no effect on the direction of Discover Financial i.e., Discover Financial and Best Buy go up and down completely randomly.

Pair Corralation between Discover Financial and Best Buy

Assuming the 90 days trading horizon Discover Financial Services is expected to generate 5.92 times more return on investment than Best Buy. However, Discover Financial is 5.92 times more volatile than Best Buy Co. It trades about 0.35 of its potential returns per unit of risk. Best Buy Co is currently generating about -0.3 per unit of risk. If you would invest  41,833  in Discover Financial Services on October 27, 2024 and sell it today you would earn a total of  17,891  from holding Discover Financial Services or generate 42.77% return on investment over 90 days.

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

Discover Financial Services  vs.  Best Buy Co

Discover Financial

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Discover Financial Services are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain technical and fundamental indicators, Discover Financial sustained solid returns over the last few months and may actually be approaching a breakup point.

Best Buy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Best Buy Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Discover Financial and Best Buy

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

The idea behind Discover Financial Services and Best Buy Co 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.