Correlation Between Discover Financial and AmTrust Financial

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

Diversification Opportunities for Discover Financial and AmTrust Financial

0.78

Correlation Coefficient

Discover Financial  AmTrust Financial

Poor diversification

The 3 months correlation between Discover and AmTrust is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Discover Financial Services and AmTrust Financial Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AmTrust Financial 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 AmTrust Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AmTrust Financial has no effect on the direction of Discover Financial i.e., Discover Financial and AmTrust Financial go up and down completely randomly.

Pair Corralation between Discover Financial and AmTrust Financial

Considering the 90-day investment horizon Discover Financial Services is expected to generate 0.38 times more return on investment than AmTrust Financial. However, Discover Financial Services is 2.64 times less risky than AmTrust Financial. It trades about 0.06 of its potential returns per unit of risk. AmTrust Financial Services is currently generating about 0.02 per unit of risk. If you would invest  17,252  in Discover Financial Services on September 18, 2024 and sell it today you would earn a total of  205.00  from holding Discover Financial Services or generate 1.19% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.24%
Values	Daily Returns

Discover Financial Services  vs.  AmTrust Financial Services

Discover Financial

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Discover Financial Services are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively abnormal technical and fundamental indicators, Discover Financial unveiled solid returns over the last few months and may actually be approaching a breakup point.

AmTrust Financial

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in AmTrust Financial Services are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable forward indicators, AmTrust Financial is not utilizing all of its potentials. The recent stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Discover Financial and AmTrust Financial

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

The idea behind Discover Financial Services and AmTrust Financial Services 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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.