Correlation Between Discover Financial and Cemepe Investimentos

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

Diversification Opportunities for Discover Financial and Cemepe Investimentos

0.8

Correlation Coefficient

Discover Financial  Cemepe Investimentos

Very poor diversification

The 3 months correlation between Discover and Cemepe is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Discover Financial Services and Cemepe Investimentos SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cemepe Investimentos 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 Cemepe Investimentos. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cemepe Investimentos has no effect on the direction of Discover Financial i.e., Discover Financial and Cemepe Investimentos go up and down completely randomly.

Pair Corralation between Discover Financial and Cemepe Investimentos

Assuming the 90 days trading horizon Discover Financial Services is expected to generate 0.2 times more return on investment than Cemepe Investimentos. However, Discover Financial Services is 4.97 times less risky than Cemepe Investimentos. It trades about 0.12 of its potential returns per unit of risk. Cemepe Investimentos SA is currently generating about -0.02 per unit of risk. If you would invest  26,469  in Discover Financial Services on October 9, 2024 and sell it today you would earn a total of  15,364  from holding Discover Financial Services or generate 58.05% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	99.6%
Values	Daily Returns

Discover Financial Services  vs.  Cemepe Investimentos SA

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.

Cemepe Investimentos

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Cemepe Investimentos SA are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, Cemepe Investimentos unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Discover Financial and Cemepe Investimentos

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

The idea behind Discover Financial Services and Cemepe Investimentos SA 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.