Correlation Between Discover Financial and PT Gajah

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

Diversification Opportunities for Discover Financial and PT Gajah

-0.32

Correlation Coefficient

Discover Financial  PT Gajah

Very good diversification

The 3 months correlation between Discover and GH8 is -0.32. Overlapping area represents the amount of risk that can be diversified away by holding Discover Financial Services and PT Gajah Tunggal in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PT Gajah Tunggal 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 PT Gajah. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PT Gajah Tunggal has no effect on the direction of Discover Financial i.e., Discover Financial and PT Gajah go up and down completely randomly.

Pair Corralation between Discover Financial and PT Gajah

Assuming the 90 days horizon Discover Financial is expected to generate 2.85 times less return on investment than PT Gajah. But when comparing it to its historical volatility, Discover Financial Services is 5.7 times less risky than PT Gajah. It trades about 0.08 of its potential returns per unit of risk. PT Gajah Tunggal is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  5.85  in PT Gajah Tunggal on October 9, 2024 and sell it today you would lose (0.10) from holding PT Gajah Tunggal or give up 1.71% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	97.37%
Values	Daily Returns

Discover Financial Services  vs.  PT Gajah Tunggal

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 unsteady basic indicators, Discover Financial reported solid returns over the last few months and may actually be approaching a breakup point.

PT Gajah Tunggal

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in PT Gajah Tunggal are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, PT Gajah reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Discover Financial and PT Gajah

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

The idea behind Discover Financial Services and PT Gajah Tunggal 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 Stocks Directory module to find actively traded stocks across global markets.