Correlation Between Discover Financial and Scientific Games

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

Diversification Opportunities for Discover Financial and Scientific Games

-0.1

Correlation Coefficient

Discover Financial  Scientific Games

Good diversification

The 3 months correlation between Discover and Scientific is -0.1. Overlapping area represents the amount of risk that can be diversified away by holding Discover Financial Services and Scientific Games in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Scientific Games 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 Scientific Games. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Scientific Games has no effect on the direction of Discover Financial i.e., Discover Financial and Scientific Games go up and down completely randomly.

Pair Corralation between Discover Financial and Scientific Games

Assuming the 90 days horizon Discover Financial Services is expected to under-perform the Scientific Games. In addition to that, Discover Financial is 1.12 times more volatile than Scientific Games. It trades about -0.05 of its total potential returns per unit of risk. Scientific Games is currently generating about 0.12 per unit of volatility. If you would invest  8,100  in Scientific Games on December 23, 2024 and sell it today you would earn a total of  1,400  from holding Scientific Games or generate 17.28% 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.  Scientific Games

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.

Scientific Games

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Scientific Games are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Scientific Games reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Discover Financial and Scientific Games

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

The idea behind Discover Financial Services and Scientific Games 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.