Correlation Between Discover Financial and Upstart Holdings

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

Diversification Opportunities for Discover Financial and Upstart Holdings

0.73

Correlation Coefficient

Discover Financial  Upstart Holdings

Poor diversification

The 3 months correlation between Discover and Upstart is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Discover Financial Services and Upstart Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Upstart 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 Upstart Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Upstart Holdings has no effect on the direction of Discover Financial i.e., Discover Financial and Upstart Holdings go up and down completely randomly.

Pair Corralation between Discover Financial and Upstart Holdings

Considering the 90-day investment horizon Discover Financial Services is expected to generate 0.42 times more return on investment than Upstart Holdings. However, Discover Financial Services is 2.38 times less risky than Upstart Holdings. It trades about -0.04 of its potential returns per unit of risk. Upstart Holdings is currently generating about -0.04 per unit of risk. If you would invest  17,185  in Discover Financial Services on December 29, 2024 and sell it today you would lose (1,312) from holding Discover Financial Services or give up 7.63% of portfolio value over 90 days.

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

Discover Financial Services  vs.  Upstart Holdings

Discover Financial

Risk-Adjusted Performance

Very Weak

Over the last 90 days Discover Financial Services has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable technical and fundamental indicators, Discover Financial is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Upstart Holdings

Risk-Adjusted Performance

Very Weak

Over the last 90 days Upstart Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in April 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Discover Financial and Upstart Holdings

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

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