Correlation Between Discover Financial and Magna International

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

Diversification Opportunities for Discover Financial and Magna International

0.9

Correlation Coefficient

Discover Financial  Magna International

Almost no diversification

The 3 months correlation between Discover and Magna is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Discover Financial Services and Magna International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Magna International 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 Magna International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Magna International has no effect on the direction of Discover Financial i.e., Discover Financial and Magna International go up and down completely randomly.

Pair Corralation between Discover Financial and Magna International

Assuming the 90 days horizon Discover Financial Services is expected to generate 0.79 times more return on investment than Magna International. However, Discover Financial Services is 1.26 times less risky than Magna International. It trades about -0.01 of its potential returns per unit of risk. Magna International is currently generating about -0.01 per unit of risk. If you would invest  17,144  in Discover Financial Services on October 10, 2024 and sell it today you would lose (158.00) from holding Discover Financial Services or give up 0.92% of portfolio value over 90 days.

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

Discover Financial Services  vs.  Magna International

Discover Financial

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Discover Financial Services are ranked lower than 13 (%) 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.

Magna International

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Magna International are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Magna International may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Discover Financial and Magna International

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

The idea behind Discover Financial Services and Magna International 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.