Correlation Between MGP Ingredients and Discover Financial

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

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

Diversification Opportunities for MGP Ingredients and Discover Financial

-0.82

Correlation Coefficient

MGP Ingredients  Discover Financial

Pay attention - limited upside

The 3 months correlation between MGP and Discover is -0.82. Overlapping area represents the amount of risk that can be diversified away by holding MGP Ingredients and Discover Financial Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Discover Financial and MGP Ingredients 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 MGP Ingredients 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 MGP Ingredients i.e., MGP Ingredients and Discover Financial go up and down completely randomly.

Pair Corralation between MGP Ingredients and Discover Financial

Assuming the 90 days trading horizon MGP Ingredients is expected to under-perform the Discover Financial. In addition to that, MGP Ingredients is 1.53 times more volatile than Discover Financial Services. It trades about -0.61 of its total potential returns per unit of risk. Discover Financial Services is currently generating about 0.14 per unit of volatility. If you would invest  16,608  in Discover Financial Services on October 11, 2024 and sell it today you would earn a total of  472.00  from holding Discover Financial Services or generate 2.84% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Significant
Accuracy	94.44%
Values	Daily Returns

MGP Ingredients  vs.  Discover Financial Services

MGP Ingredients

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days MGP Ingredients has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fragile performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in February 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Discover Financial

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Discover Financial Services are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Discover Financial reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with MGP Ingredients and Discover Financial

The main advantage of trading using opposite MGP Ingredients and Discover Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if MGP Ingredients 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 MGP Ingredients 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.