Correlation Between Discover Financial and Erste Group

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

Diversification Opportunities for Discover Financial and Erste Group

-0.16

Correlation Coefficient

Discover Financial  Erste Group

Good diversification

The 3 months correlation between Discover and Erste is -0.16. Overlapping area represents the amount of risk that can be diversified away by holding Discover Financial Services and Erste Group Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Erste Group Bank 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 Erste Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Erste Group Bank has no effect on the direction of Discover Financial i.e., Discover Financial and Erste Group go up and down completely randomly.

Pair Corralation between Discover Financial and Erste Group

Assuming the 90 days horizon Discover Financial Services is expected to under-perform the Erste Group. In addition to that, Discover Financial is 1.2 times more volatile than Erste Group Bank. It trades about -0.05 of its total potential returns per unit of risk. Erste Group Bank is currently generating about 0.11 per unit of volatility. If you would invest  5,908  in Erste Group Bank on December 24, 2024 and sell it today you would earn a total of  836.00  from holding Erste Group Bank or generate 14.15% return on investment over 90 days.

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

Discover Financial Services  vs.  Erste Group Bank

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 uncertain 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.

Erste Group Bank

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Erste Group Bank are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Erste Group unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Discover Financial and Erste Group

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

The idea behind Discover Financial Services and Erste Group Bank 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.