Correlation Between Discover Financial and Check Point

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

Diversification Opportunities for Discover Financial and Check Point

0.3

Correlation Coefficient

Discover Financial  Check Point

Weak diversification

The 3 months correlation between Discover and Check is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding Discover Financial Services and Check Point Software in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Check Point Software 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 Check Point. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Check Point Software has no effect on the direction of Discover Financial i.e., Discover Financial and Check Point go up and down completely randomly.

Pair Corralation between Discover Financial and Check Point

Assuming the 90 days trading horizon Discover Financial Services is expected to generate 4.55 times more return on investment than Check Point. However, Discover Financial is 4.55 times more volatile than Check Point Software. It trades about 0.07 of its potential returns per unit of risk. Check Point Software is currently generating about 0.18 per unit of risk. If you would invest  41,723  in Discover Financial Services on December 25, 2024 and sell it today you would earn a total of  6,264  from holding Discover Financial Services or generate 15.01% return on investment over 90 days.

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

Discover Financial Services  vs.  Check Point Software

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 5 (%) 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.

Check Point Software

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Check Point Software are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak technical indicators, Check Point may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Discover Financial and Check Point

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

The idea behind Discover Financial Services and Check Point Software 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.