Correlation Between Fresenius Medical and Discover Financial

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

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

Diversification Opportunities for Fresenius Medical and Discover Financial

0.7

Correlation Coefficient

Fresenius Medical  Discover Financial

Poor diversification

The 3 months correlation between Fresenius and Discover is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Fresenius Medical Care and Discover Financial Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Discover Financial and Fresenius Medical 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 Fresenius Medical Care 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 Fresenius Medical i.e., Fresenius Medical and Discover Financial go up and down completely randomly.

Pair Corralation between Fresenius Medical and Discover Financial

Assuming the 90 days trading horizon Fresenius Medical is expected to generate 1.27 times less return on investment than Discover Financial. In addition to that, Fresenius Medical is 1.01 times more volatile than Discover Financial Services. It trades about 0.24 of its total potential returns per unit of risk. Discover Financial Services is currently generating about 0.31 per unit of volatility. If you would invest  41,833  in Discover Financial Services on October 23, 2024 and sell it today you would earn a total of  14,167  from holding Discover Financial Services or generate 33.87% return on investment over 90 days.

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

Fresenius Medical Care  vs.  Discover Financial Services

Fresenius Medical Care

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Fresenius Medical Care are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Fresenius Medical sustained solid returns over the last few months and may actually be approaching a breakup point.

Discover Financial

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Discover Financial Services are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak technical and fundamental indicators, Discover Financial sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Fresenius Medical and Discover Financial

The main advantage of trading using opposite Fresenius Medical and Discover Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Fresenius Medical 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 Fresenius Medical Care 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.