Correlation Between Discover Financial and CLST Holdings

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

Diversification Opportunities for Discover Financial and CLST Holdings

-0.43

Correlation Coefficient

Discover Financial  CLST Holdings

Very good diversification

The 3 months correlation between Discover and CLST is -0.43. Overlapping area represents the amount of risk that can be diversified away by holding Discover Financial Services and CLST Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CLST Holdings 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 CLST Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CLST Holdings has no effect on the direction of Discover Financial i.e., Discover Financial and CLST Holdings go up and down completely randomly.

Pair Corralation between Discover Financial and CLST Holdings

Considering the 90-day investment horizon Discover Financial is expected to generate 32.26 times less return on investment than CLST Holdings. But when comparing it to its historical volatility, Discover Financial Services is 28.55 times less risky than CLST Holdings. It trades about 0.16 of its potential returns per unit of risk. CLST Holdings is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  2.70  in CLST Holdings on October 26, 2024 and sell it today you would earn a total of  7.29  from holding CLST Holdings or generate 270.0% return on investment over 90 days.

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

Discover Financial Services  vs.  CLST Holdings

Discover Financial

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Discover Financial Services are ranked lower than 12 (%) 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.

CLST Holdings

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in CLST Holdings are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite fairly unfluctuating technical indicators, CLST Holdings demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Discover Financial and CLST Holdings

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

The idea behind Discover Financial Services and CLST Holdings 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.