Correlation Between Discover Financial and Arrow Electronics

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

Diversification Opportunities for Discover Financial and Arrow Electronics

-0.77

Correlation Coefficient

Discover Financial  Arrow Electronics

Pay attention - limited upside

The 3 months correlation between Discover and Arrow is -0.77. Overlapping area represents the amount of risk that can be diversified away by holding Discover Financial Services and Arrow Electronics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Arrow Electronics 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 Arrow Electronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Arrow Electronics has no effect on the direction of Discover Financial i.e., Discover Financial and Arrow Electronics go up and down completely randomly.

Pair Corralation between Discover Financial and Arrow Electronics

Considering the 90-day investment horizon Discover Financial is expected to generate 3.17 times less return on investment than Arrow Electronics. But when comparing it to its historical volatility, Discover Financial Services is 1.27 times less risky than Arrow Electronics. It trades about 0.06 of its potential returns per unit of risk. Arrow Electronics is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  11,490  in Arrow Electronics on September 18, 2024 and sell it today you would earn a total of  439.00  from holding Arrow Electronics or generate 3.82% return on investment over 90 days.

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

Discover Financial Services  vs.  Arrow Electronics

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.

Arrow Electronics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Arrow Electronics has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's basic indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the venture sophisticated investors.

Pair Trading with Discover Financial and Arrow Electronics

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

The idea behind Discover Financial Services and Arrow Electronics 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 Financial Widgets module to easily integrated Macroaxis content with over 30 different plug-and-play financial widgets.