Correlation Between Discover Financial and SK Growth

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

Diversification Opportunities for Discover Financial and SK Growth

0.65

Correlation Coefficient

Discover Financial  SK Growth

Poor diversification

The 3 months correlation between Discover and SKGR is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Discover Financial Services and SK Growth Opportunities in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SK Growth Opportunities 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 SK Growth. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SK Growth Opportunities has no effect on the direction of Discover Financial i.e., Discover Financial and SK Growth go up and down completely randomly.

Pair Corralation between Discover Financial and SK Growth

Considering the 90-day investment horizon Discover Financial Services is expected to generate 8.22 times more return on investment than SK Growth. However, Discover Financial is 8.22 times more volatile than SK Growth Opportunities. It trades about 0.11 of its potential returns per unit of risk. SK Growth Opportunities is currently generating about 0.13 per unit of risk. If you would invest  17,491  in Discover Financial Services on October 22, 2024 and sell it today you would earn a total of  1,227  from holding Discover Financial Services or generate 7.02% return on investment over 90 days.

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

Discover Financial Services  vs.  SK Growth Opportunities

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

SK Growth Opportunities

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in SK Growth Opportunities are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable technical and fundamental indicators, SK Growth is not utilizing all of its potentials. The newest stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Discover Financial and SK Growth

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

The idea behind Discover Financial Services and SK Growth Opportunities 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.