Correlation Between Discover Financial and ALLTEL

Can any of the company-specific risk be diversified away by investing in both Discover Financial and ALLTEL 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 ALLTEL 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 ALLTEL P 7875, you can compare the effects of market volatilities on Discover Financial and ALLTEL 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 ALLTEL. Check out your portfolio center. Please also check ongoing floating volatility patterns of Discover Financial and ALLTEL.

Diversification Opportunities for Discover Financial and ALLTEL

0.47

Correlation Coefficient

Discover Financial  ALLTEL

Very weak diversification

The 3 months correlation between Discover and ALLTEL is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding Discover Financial Services and ALLTEL P 7875 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ALLTEL P 7875 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 ALLTEL. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ALLTEL P 7875 has no effect on the direction of Discover Financial i.e., Discover Financial and ALLTEL go up and down completely randomly.

Pair Corralation between Discover Financial and ALLTEL

Considering the 90-day investment horizon Discover Financial Services is expected to generate 0.97 times more return on investment than ALLTEL. However, Discover Financial Services is 1.03 times less risky than ALLTEL. It trades about -0.04 of its potential returns per unit of risk. ALLTEL P 7875 is currently generating about -0.12 per unit of risk. If you would invest  18,181  in Discover Financial Services on October 7, 2024 and sell it today you would lose (575.00) from holding Discover Financial Services or give up 3.16% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	34.15%
Values	Daily Returns

Discover Financial Services  vs.  ALLTEL P 7875

Discover Financial

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Discover Financial Services are ranked lower than 9 (%) 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.

ALLTEL P 7875

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ALLTEL P 7875 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Bond's basic indicators remain somewhat strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for ALLTEL P 7875 investors.

Pair Trading with Discover Financial and ALLTEL

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

The idea behind Discover Financial Services and ALLTEL P 7875 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.