Correlation Between Hargreaves Lansdown and Discover Financial

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

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

Diversification Opportunities for Hargreaves Lansdown and Discover Financial

-0.26

Correlation Coefficient

Hargreaves Lansdown  Discover Financial

Very good diversification

The 3 months correlation between Hargreaves and Discover is -0.26. Overlapping area represents the amount of risk that can be diversified away by holding Hargreaves Lansdown plc and Discover Financial Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Discover Financial and Hargreaves Lansdown 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 Hargreaves Lansdown plc 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 Hargreaves Lansdown i.e., Hargreaves Lansdown and Discover Financial go up and down completely randomly.

Pair Corralation between Hargreaves Lansdown and Discover Financial

Assuming the 90 days trading horizon Hargreaves Lansdown plc is expected to generate 0.04 times more return on investment than Discover Financial. However, Hargreaves Lansdown plc is 27.66 times less risky than Discover Financial. It trades about 0.15 of its potential returns per unit of risk. Discover Financial Services is currently generating about -0.01 per unit of risk. If you would invest  109,800  in Hargreaves Lansdown plc on December 25, 2024 and sell it today you would earn a total of  1,050  from holding Hargreaves Lansdown plc or generate 0.96% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.08%
Values	Daily Returns

Hargreaves Lansdown plc  vs.  Discover Financial Services

Hargreaves Lansdown plc

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Hargreaves Lansdown plc are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, Hargreaves Lansdown is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

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 basic indicators, Discover Financial is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Hargreaves Lansdown and Discover Financial

The main advantage of trading using opposite Hargreaves Lansdown and Discover Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Hargreaves Lansdown 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 Hargreaves Lansdown plc 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.