Correlation Between Discover Financial and Data3

Can any of the company-specific risk be diversified away by investing in both Discover Financial and Data3 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 Data3 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 Data3 Limited, you can compare the effects of market volatilities on Discover Financial and Data3 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 Data3. Check out your portfolio center. Please also check ongoing floating volatility patterns of Discover Financial and Data3.

Diversification Opportunities for Discover Financial and Data3

0.39

Correlation Coefficient

Discover Financial  Data3

Weak diversification

The 3 months correlation between Discover and Data3 is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding Discover Financial Services and Data3 Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Data3 Limited 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 Data3. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Data3 Limited has no effect on the direction of Discover Financial i.e., Discover Financial and Data3 go up and down completely randomly.

Pair Corralation between Discover Financial and Data3

Considering the 90-day investment horizon Discover Financial Services is expected to generate 11.18 times more return on investment than Data3. However, Discover Financial is 11.18 times more volatile than Data3 Limited. It trades about 0.16 of its potential returns per unit of risk. Data3 Limited is currently generating about 0.13 per unit of risk. If you would invest  13,080  in Discover Financial Services on September 13, 2024 and sell it today you would earn a total of  4,488  from holding Discover Financial Services or generate 34.31% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.44%
Values	Daily Returns

Discover Financial Services  vs.  Data3 Limited

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 weak technical and fundamental indicators, Discover Financial unveiled solid returns over the last few months and may actually be approaching a breakup point.

Data3 Limited

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Data3 Limited are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Data3 is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Discover Financial and Data3

The main advantage of trading using opposite Discover Financial and Data3 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Discover Financial position performs unexpectedly, Data3 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 Data3 will offset losses from the drop in Data3's long position.

The idea behind Discover Financial Services and Data3 Limited 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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.