Correlation Between Discover Financial and CARSALESCOM

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

Diversification Opportunities for Discover Financial and CARSALESCOM

0.4

Correlation Coefficient

Discover Financial  CARSALESCOM

Very weak diversification

The 3 months correlation between Discover and CARSALESCOM is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding Discover Financial Services and CARSALESCOM in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CARSALESCOM 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 CARSALESCOM. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CARSALESCOM has no effect on the direction of Discover Financial i.e., Discover Financial and CARSALESCOM go up and down completely randomly.

Pair Corralation between Discover Financial and CARSALESCOM

Assuming the 90 days horizon Discover Financial Services is expected to generate 0.81 times more return on investment than CARSALESCOM. However, Discover Financial Services is 1.24 times less risky than CARSALESCOM. It trades about 0.11 of its potential returns per unit of risk. CARSALESCOM is currently generating about -0.02 per unit of risk. If you would invest  16,608  in Discover Financial Services on October 11, 2024 and sell it today you would earn a total of  378.00  from holding Discover Financial Services or generate 2.28% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	94.44%
Values	Daily Returns

Discover Financial Services  vs.  CARSALESCOM

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.

CARSALESCOM

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in CARSALESCOM are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, CARSALESCOM is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Discover Financial and CARSALESCOM

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

The idea behind Discover Financial Services and CARSALESCOM 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.