Correlation Between Discover Financial and CVB Financial

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

Diversification Opportunities for Discover Financial and CVB Financial

0.19

Correlation Coefficient

Discover Financial  CVB Financial

Average diversification

The 3 months correlation between Discover and CVB is 0.19. Overlapping area represents the amount of risk that can be diversified away by holding Discover Financial Services and CVB Financial Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CVB Financial Corp 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 CVB Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CVB Financial Corp has no effect on the direction of Discover Financial i.e., Discover Financial and CVB Financial go up and down completely randomly.

Pair Corralation between Discover Financial and CVB Financial

Assuming the 90 days horizon Discover Financial Services is expected to generate 1.68 times more return on investment than CVB Financial. However, Discover Financial is 1.68 times more volatile than CVB Financial Corp. It trades about -0.04 of its potential returns per unit of risk. CVB Financial Corp is currently generating about -0.16 per unit of risk. If you would invest  16,138  in Discover Financial Services on December 20, 2024 and sell it today you would lose (1,324) from holding Discover Financial Services or give up 8.2% of portfolio value over 90 days.

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

Discover Financial Services  vs.  CVB Financial Corp

Discover Financial

Risk-Adjusted Performance

Very Weak

Over the last 90 days Discover Financial Services has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

CVB Financial Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days CVB Financial Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Discover Financial and CVB Financial

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

The idea behind Discover Financial Services and CVB Financial Corp 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.