Correlation Between RTW Venture and Discover Financial

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

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

Diversification Opportunities for RTW Venture and Discover Financial

0.4

Correlation Coefficient

RTW Venture  Discover Financial

Very weak diversification

The 3 months correlation between RTW and Discover is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding RTW Venture Fund and Discover Financial Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Discover Financial and RTW Venture 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 RTW Venture Fund 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 RTW Venture i.e., RTW Venture and Discover Financial go up and down completely randomly.

Pair Corralation between RTW Venture and Discover Financial

Assuming the 90 days trading horizon RTW Venture Fund is expected to under-perform the Discover Financial. But the stock apears to be less risky and, when comparing its historical volatility, RTW Venture Fund is 2.08 times less risky than Discover Financial. The stock trades about -0.16 of its potential returns per unit of risk. The Discover Financial Services is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  17,103  in Discover Financial Services on December 30, 2024 and sell it today you would lose (1,277) from holding Discover Financial Services or give up 7.47% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	95.38%
Values	Daily Returns

RTW Venture Fund  vs.  Discover Financial Services

RTW Venture Fund

Risk-Adjusted Performance

Very Weak

Over the last 90 days RTW Venture Fund has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's technical and fundamental indicators remain rather sound which may send shares a bit higher in April 2025. The latest tumult may also be a sign of longer-term up-swing for the firm 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 RTW Venture and Discover Financial

The main advantage of trading using opposite RTW Venture and Discover Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if RTW Venture 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 RTW Venture Fund 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.