Correlation Between Discover Financial and DR Horton

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

Diversification Opportunities for Discover Financial and DR Horton

-0.55

Correlation Coefficient

Discover Financial  DR Horton

Excellent diversification

The 3 months correlation between Discover and D1HI34 is -0.55. Overlapping area represents the amount of risk that can be diversified away by holding Discover Financial Services and DR Horton in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DR Horton 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 DR Horton. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DR Horton has no effect on the direction of Discover Financial i.e., Discover Financial and DR Horton go up and down completely randomly.

Pair Corralation between Discover Financial and DR Horton

Assuming the 90 days trading horizon Discover Financial Services is expected to generate 1.14 times more return on investment than DR Horton. However, Discover Financial is 1.14 times more volatile than DR Horton. It trades about 0.14 of its potential returns per unit of risk. DR Horton is currently generating about 0.06 per unit of risk. If you would invest  26,469  in Discover Financial Services on October 24, 2024 and sell it today you would earn a total of  29,531  from holding Discover Financial Services or generate 111.57% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	86.18%
Values	Daily Returns

Discover Financial Services  vs.  DR Horton

Discover Financial

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Discover Financial Services are ranked lower than 13 (%) 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.

DR Horton

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days DR Horton has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Stock's technical indicators remain somewhat strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Discover Financial and DR Horton

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

The idea behind Discover Financial Services and DR Horton 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.