Correlation Between Premier Foods and Discover Financial

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

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

Diversification Opportunities for Premier Foods and Discover Financial

0.32

Correlation Coefficient

Premier Foods  Discover Financial

Weak diversification

The 3 months correlation between Premier and Discover is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding Premier Foods 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 Premier Foods 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 Premier Foods 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 Premier Foods i.e., Premier Foods and Discover Financial go up and down completely randomly.

Pair Corralation between Premier Foods and Discover Financial

Assuming the 90 days trading horizon Premier Foods PLC is expected to generate 0.79 times more return on investment than Discover Financial. However, Premier Foods PLC is 1.26 times less risky than Discover Financial. It trades about 0.06 of its potential returns per unit of risk. Discover Financial Services is currently generating about -0.08 per unit of risk. If you would invest  18,600  in Premier Foods PLC on October 8, 2024 and sell it today you would earn a total of  180.00  from holding Premier Foods PLC or generate 0.97% return on investment over 90 days.

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

Premier Foods PLC  vs.  Discover Financial Services

Premier Foods PLC

Risk-Adjusted Performance

5 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Premier Foods PLC are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental indicators, Premier Foods 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

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Discover Financial Services are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, Discover Financial unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Premier Foods and Discover Financial

The main advantage of trading using opposite Premier Foods and Discover Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Premier Foods 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 Premier Foods 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..