Correlation Between MSP Recovery and Discover Financial

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

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

Diversification Opportunities for MSP Recovery and Discover Financial

0.72

Correlation Coefficient

MSP Recovery  Discover Financial

Poor diversification

The 3 months correlation between MSP and Discover is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding MSP Recovery and Discover Financial Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Discover Financial and MSP Recovery 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 MSP Recovery 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 MSP Recovery i.e., MSP Recovery and Discover Financial go up and down completely randomly.

Pair Corralation between MSP Recovery and Discover Financial

Given the investment horizon of 90 days MSP Recovery is expected to generate 29.16 times more return on investment than Discover Financial. However, MSP Recovery is 29.16 times more volatile than Discover Financial Services. It trades about 0.06 of its potential returns per unit of risk. Discover Financial Services is currently generating about 0.06 per unit of risk. If you would invest  3,325  in MSP Recovery on October 11, 2024 and sell it today you would lose (3,100) from holding MSP Recovery or give up 93.23% of portfolio value over 90 days.

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

MSP Recovery  vs.  Discover Financial Services

MSP Recovery

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in MSP Recovery are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Even with relatively uncertain basic indicators, MSP Recovery reported solid returns over the last few months and may actually be approaching a breakup point.

Discover Financial

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Discover Financial Services are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak technical and fundamental indicators, Discover Financial unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with MSP Recovery and Discover Financial

The main advantage of trading using opposite MSP Recovery and Discover Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if MSP Recovery 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 MSP Recovery 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.