Correlation Between Eastern and Discover Financial

Can any of the company-specific risk be diversified away by investing in both Eastern and Discover Financial 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 Eastern and Discover Financial into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Eastern Co and Discover Financial Services, you can compare the effects of market volatilities on Eastern and Discover Financial 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 Eastern with a short position of Discover Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Eastern and Discover Financial.

Diversification Opportunities for Eastern and Discover Financial

0.18

Correlation Coefficient

Eastern  Discover Financial

Average diversification

The 3 months correlation between Eastern and Discover is 0.18. Overlapping area represents the amount of risk that can be diversified away by holding Eastern Co and Discover Financial Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Discover Financial and Eastern 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 Eastern Co are associated (or correlated) with Discover Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Discover Financial has no effect on the direction of Eastern i.e., Eastern and Discover Financial go up and down completely randomly.

Pair Corralation between Eastern and Discover Financial

Considering the 90-day investment horizon Eastern Co is expected to generate 0.89 times more return on investment than Discover Financial. However, Eastern Co is 1.12 times less risky than Discover Financial. It trades about -0.01 of its potential returns per unit of risk. Discover Financial Services is currently generating about -0.03 per unit of risk. If you would invest  2,748  in Eastern Co on December 20, 2024 and sell it today you would lose (74.00) from holding Eastern Co or give up 2.69% of portfolio value over 90 days.

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

Eastern Co  vs.  Discover Financial Services

Eastern

Risk-Adjusted Performance

Very Weak

Over the last 90 days Eastern Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent primary indicators, Eastern is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

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.

Pair Trading with Eastern and Discover Financial

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

The idea behind Eastern Co and Discover Financial Services 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.