Correlation Between Discover Financial and Baldwin Insurance

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

Diversification Opportunities for Discover Financial and Baldwin Insurance

-0.6

Correlation Coefficient

Discover Financial  Baldwin Insurance

Excellent diversification

The 3 months correlation between Discover and Baldwin is -0.6. Overlapping area represents the amount of risk that can be diversified away by holding Discover Financial Services and The Baldwin Insurance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Baldwin Insurance 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 Baldwin Insurance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Baldwin Insurance has no effect on the direction of Discover Financial i.e., Discover Financial and Baldwin Insurance go up and down completely randomly.

Pair Corralation between Discover Financial and Baldwin Insurance

Considering the 90-day investment horizon Discover Financial Services is expected to generate 0.55 times more return on investment than Baldwin Insurance. However, Discover Financial Services is 1.83 times less risky than Baldwin Insurance. It trades about -0.14 of its potential returns per unit of risk. The Baldwin Insurance is currently generating about -0.46 per unit of risk. If you would invest  18,011  in Discover Financial Services on October 3, 2024 and sell it today you would lose (688.00) from holding Discover Financial Services or give up 3.82% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

Discover Financial Services  vs.  The Baldwin Insurance

Discover Financial

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Discover Financial Services are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak technical and fundamental indicators, Discover Financial unveiled solid returns over the last few months and may actually be approaching a breakup point.

Baldwin Insurance

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days The Baldwin Insurance has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of inconsistent performance in the last few months, the Stock's forward indicators remain very healthy which may send shares a bit higher in February 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Discover Financial and Baldwin Insurance

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

The idea behind Discover Financial Services and The Baldwin Insurance 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.

Check out your portfolio center.

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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.