Correlation Between HomeToGo and Discover Financial

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

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

Diversification Opportunities for HomeToGo and Discover Financial

0.15

Correlation Coefficient

HomeToGo  Discover Financial

Average diversification

The 3 months correlation between HomeToGo and Discover is 0.15. Overlapping area represents the amount of risk that can be diversified away by holding HomeToGo SE and Discover Financial Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Discover Financial and HomeToGo 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 HomeToGo SE 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 HomeToGo i.e., HomeToGo and Discover Financial go up and down completely randomly.

Pair Corralation between HomeToGo and Discover Financial

Assuming the 90 days trading horizon HomeToGo SE is expected to under-perform the Discover Financial. In addition to that, HomeToGo is 1.17 times more volatile than Discover Financial Services. It trades about -0.02 of its total potential returns per unit of risk. Discover Financial Services is currently generating about 0.1 per unit of volatility. If you would invest  9,843  in Discover Financial Services on October 7, 2024 and sell it today you would earn a total of  7,049  from holding Discover Financial Services or generate 71.61% return on investment over 90 days.

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

HomeToGo SE  vs.  Discover Financial Services

HomeToGo SE

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in HomeToGo SE are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable technical and fundamental indicators, HomeToGo is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

Discover Financial

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Discover Financial Services are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, Discover Financial reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with HomeToGo and Discover Financial

The main advantage of trading using opposite HomeToGo and Discover Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if HomeToGo 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 HomeToGo SE 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.

Check out your portfolio center.

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 Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.