Correlation Between Discover Financial and Dynex Capital

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

Diversification Opportunities for Discover Financial and Dynex Capital

0.86

Correlation Coefficient

Discover Financial  Dynex Capital

Very poor diversification

The 3 months correlation between Discover and Dynex is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Discover Financial Services and Dynex Capital in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dynex Capital 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 Dynex Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dynex Capital has no effect on the direction of Discover Financial i.e., Discover Financial and Dynex Capital go up and down completely randomly.

Pair Corralation between Discover Financial and Dynex Capital

Assuming the 90 days horizon Discover Financial Services is expected to generate 1.42 times more return on investment than Dynex Capital. However, Discover Financial is 1.42 times more volatile than Dynex Capital. It trades about 0.07 of its potential returns per unit of risk. Dynex Capital is currently generating about 0.03 per unit of risk. If you would invest  8,883  in Discover Financial Services on October 11, 2024 and sell it today you would earn a total of  8,103  from holding Discover Financial Services or generate 91.22% return on investment over 90 days.

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

Discover Financial Services  vs.  Dynex Capital

Discover Financial

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Discover Financial Services are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Discover Financial reported solid returns over the last few months and may actually be approaching a breakup point.

Dynex Capital

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Dynex Capital are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Dynex Capital reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Discover Financial and Dynex Capital

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

The idea behind Discover Financial Services and Dynex Capital 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.